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Richmond Fed President Thomas Barkin speaks with Yahoo Finance [Transcript]

Brian Cheung
·Reporter

Thomas Barkin, president of the Federal Reserve Bank of Richmond, spoke with Yahoo Finance on April 14 to discuss economic conditions in the mid-Atlantic region and the Fed’s recent $2.3 trillion effort to support the U.S. economy as the coronavirus continues to grip the nation.

Below is a transcript of his appearance:

MYLES UDLAND: We are joined now by Tom Barkin the president of the Federal Reserve Bank of Richmond, we're also joined by Yahoo Finance Fed correspondent, Brian Cheung as well. So President Barkin, thanks for joining. I guess let's start the conversation by how you see the economy right now if you have any baseline forecasts that you guys the Richmond Fed are thinking about that you can share with us, certainly a very fast moving situation. And I know your last comments were April 8, it’s April 14 I would imagine we've learned some things in the last few days that perhaps fill in the picture that you're painting right now, in the state of the US economy.

THOMAS BARKIN: Yeah, we're gonna have a tough second and third quarter that’s for sure. One way I like to think about it, there are roughly 30 million people who work in restaurants and retail and travel and entertainment. That's roughly 20% of the workforce. And so, a lot of them are struggling right now and it's awfully easy to imagine a bunch of that population, out of work, that'd be an unemployment rate in the mid to high teens, sadly.

Where I'm more focused, though, is: what's the recovery gonna look like. And in particular, how fast can we get out of this, so that's actually where I'm spending most of my time.

BRIAN CHEUNG: President Barkin, it’s Brian Cheung here. So for those that aren't aware the Richmond Fed - you do sit in Richmond, but it covers DC Maryland North Carolina, South Carolina Virginia parts of West Virginia, the Mid Atlantic, if you will. I'm wondering based on the contacts that you've had with those on Main Street or households in the area. What have really been the big pressing problems and what do you see as an issue that the Fed, maybe needs to address further even though it's already done all these unprecedented actions over the past few weeks?

THOMAS BARKIN: Well, the first set of problems is the folks in the service businesses. We have a lot of travel and tourism, on the coasts, we've got retail, dining, and entertainment really in all of our cities and in an effort to handle a healthcare problem, those businesses got shut down.

And you hear a lot of emotions from those folks who are suffering because of what we need to do on the public health side. There is another set of businesses, the classic manufacturing businesses we have in large parts of our district. Many of them are operating but you do see knock on for folks who are in the automotive sector, for example, are suppliers into the energy sector. On the positive side, there are many essential businesses, we've got a cash processing operation but think food processing, hospital supply chain, logistics, they're very much still operating. 

And then of course we have the federal government in our district as well and it's operating as well. 

BRIAN CHEUNG: President Barkin those things that you were mentioning hopefully the cares act addresses some of that the Fed has announced that $2.3 trillion in support some of that coming from the $454 billion that was appropriated from the CARES Act which targeted Main Street lending, muni bonds, fallen angels in some cases. I'm wondering do you think that's enough? I know the Fed tapped through about half of those appropriations, and if not, where else do you think that support could go. Are there other tools in the Fed toolbox, do you think the central bank should be deploying at this time?

THOMAS BARKIN: Well the CARES Act was necessary and I described it as stabilization, not stimulus. As you know, a lot of dollars go to individuals, either directly or through unemployment insurance. A lot of dollars that are being moved now to small businesses in need, and some targeted industries and then as you say, $450 billion that was allocated to Treasury and the Fed to set up some facilities to support Main Street lending and we made an announcement last week in terms of what that might look like. Several facilities are out for comment now. 

But what we can do to bring lending dollars - and we're talking about a four year note with the first year principal and interest deferred - for midsize companies that are in need. And that's what we're working on right now, in terms of where we go next, I think that's very much dependent on what authorities are given to us by Congress in our partnership with the Treasury Department. But I hope you've seen we're willing to be pretty creative and pretty innovative in terms of bringing money where it's needed, within the constraints of our legislatively granted authorities.

MYLES UDLAND: President Barkin, you talked in the beginning of the conversation about the pace of recovery being so important here. I'm curious for your thoughts on how the economy may be reshaped on the other side of this. Certainly we want to get money into the hands of as many people who've been laid off or furloughed as possible. We want to make the businesses whole but certainly you know you know from your prior career before coming to the Fed that companies are always looking at these crisis moments to remake where they stand on the other side of this. Do you have any sense of how some companies may look to permanently alter their operations as a result and what new shape, the economy could take, you know, a couple of years down the line?

THOMAS BARKIN: Thanks for that question. I just spent 30 years in business before I came to the Fed so I’m a different profile than the average. I would say that, as I talk to businesses there's some things that are pretty obvious.

This will accelerate a move toward folks who deliver online for example, I think folks who are in consumer-facing businesses, service businesses are thinking very aggressively about, how can I build separation, cleanliness, and health protocol into what I offer. I think that's very much there. You have people rethinking supply chains, not so much necessarily to bring them on-shore, but certainly to diversify because they've seen the implication of an outage in any one place and what that can do for the business and frankly, I think a lot of people were surprised by some exposures they had in places like China beforehand. 

I think that there are workers out there, many who perhaps were in restaurants or hotels or theme parks who are asking the question of: alright what skills do I need to move into professions that may be more robust to this kind of situation.

I think you’ll see a lot of, in all, I think technology and automation, particularly as substitutes - technological contacts or personal contacts - were important, you'll see that as well. A reminder that the airlines have rolled out kiosks before 9/11, but they weren't really used en masse until they had to do the cost reduction stuff they had to do after 9/11, of course they've been expanded that to mobile check in and like. So, you'll always see that kind of technological transformation as we get through one of these.

BRIAN CHEUNG: President Barkin, drawing on your experience in the corporate world I'm wondering what are you seeing kind of around you with regards to corporate debt that seems to be a big issue that the Federal Reserve is trying to address through its primary and secondary credit facilities. Also as of last week's announcement that in some cases high yield ETFs and actually some leveraged loans might be addressed in these liquidity facilities. Do you see any sort of concern at the central bank level of a wave of defaults maybe in corporate America?

THOMAS BARKIN: Well, corporate debt levels as percent of GDP, have been elevated over the last five years, I've spoken about it as many others have as well. And when you get a stress situation like this you will see companies face liquidity stresses, and I saw a couple folks who filed today. Obviously that's going to hit the people who are the most extended and in the most stressed industries first. 

A reminder that our programs, and, you know, by law, we're not in the world of taking credit risk. The only risk we've taken is that which has been funded by Treasury. And so, we're not trying to pick winners or losers. We're trying to support the proper functioning of markets and that's why you see most of our facilities focused on the top credits, the investment grade credit, as opposed to the triple C's and the like. Whenever we have a downturn and we're in one now, you will see some of them shake out and I would expect to see that here as well.

BRIAN CHEUNG: President Barkin, you have a number of contacts on the business side in the household side in your district. I'm wondering when you have those conversations. What are you telling them right now there's a lot of uncertainty, there's a lot of nervousness out there. What's your message to them about what the Fed is doing to try to address this crisis?

PRESIDENT BARKIN: Well we took rates to zero, and hopefully that'll help stimulate some amount of investment, both on the consumer and business side when we get through this health crisis. We have been working with the banks which have been a pillar of strength in this crisis, unlike the last one, to make sure that they're making appropriate and prudent credit decisions and still staying open to lenders - sorry, borrowers. 

We've been working as I said to help make markets function, and in particular Treasury and mortgage backed and commercial paper, those are critical markets for businesses and then also consumers. And then we've been trying to set up these facilities that Congress has asked us to stand up all those things are out there helping the economy and then as I talk to businesses I can't help myself but to say: 70% of our economy is consumers, and a lot of consumers have been locked up for a month. Many of them are concerned about even once they're released their health. And I think it's incumbent on businesses to send messages of what they're doing to help provide comfort to their customers, that you can shop, you can eat at a restaurant, you can travel and go on vacation, without putting your families at risk. I'm really struck by what grocery stores are doing. In our grocery store, you’re met by someone in a mask who visibly with Clorox wipes, wipes down your cart. They've one-wayed the aisles, so that you're able to maintain the distance you want to maintain. They even marked tape on the checkout they've got face guards or self-checkout, all of which is to tell a grocery customer: you can get in and out here, and not put yourself at risk. I think we'll be seeing a lot more businesses innovating on that front.

MYLES UDLAND: All right, Tom Barkin is the president of the Richmond fed. Thanks so much for joining us today, hopefully we can talk to you soon.

THOMAS BARKIN: Look forward to it. Thank you so much.

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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