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Richmond Fed's Barkin: Positive COVID-19 vaccine developments a 'light at the end of the tunnel'

Brian Cheung
·3 min read

Federal Reserve Bank of Richmond President Tom Barkin said Wednesday that positive developments on a COVID-19 vaccine are providing more certainty to businesses, but warned that the months before widespread vaccination will be “challenging.”

Barkin told Yahoo Finance that expectations for a readily available vaccine by next summer are giving companies a loose timeline to make investments, particularly in harder-hit industries.

“These vaccine results have put a light at the end of the tunnel,” Barkin said in an exclusive interview on Wednesday.

On Monday, Moderna (MRNA) announced its vaccine was 94.5% effective and on Wednesday, Pfizer (PFE) and its partner BioNTect (BNTX) said their vaccine was 95% effective.

Production of the vaccine will take months and there are still questions about the storage and administration of the vaccine. In the meantime, Barkin said he expects the infection rate to increase, as colder weather pushes people inside and increases the risk of indoor transmission.

Barkin said the Fed would continue to keep its monetary policy accommodative as the U.S. economy continues to deal with the virus. Since the beginning of the pandemic, the central bank has slashed interest rates to near-zero and restarted its crisis-era strategy of asset purchases.

On quantitative easing, Barkin said the Fed’s $120-billion-a-month pace of U.S. Treasury and mortgage-backed securities purchases are already providing “a lot of support to the economy.” But Barkin suggested that the Fed could adjust its asset purchase program if needed.

“In terms of whether we would do something different and more, let's just see how it goes,” Barkin said. “I mean we're projecting a lot.”

[Read the full transcript here.]

Barkin also pointed to the “positive effects” of the Fed’s 13 liquidity facilities, backstopping markets ranging from municipal bonds to corporate debt. Twelve of those 13 are set to expire December 31, and Barkin said Fed officials will have to weigh how much they value having those backstops.

“Taking it away obviously means taking a risk,” Barkin said.

Getting back to maximum employment.

Under the Fed’s new framework, the central bank would not raise interest rates until it reaches maximum employment with inflation rising to its 2% goal (and showing signs of moderately overshooting it).

“We're still pretty far from where I think would be full employment,” Barkin said.

Federal Reserve Bank of Richmond President Thomas Barkin poses during a break at a Dallas Fed conference on technology in Dallas, Texas, U.S., May 23, 2019.  REUTERS/Ann Saphir
Federal Reserve Bank of Richmond President Thomas Barkin poses during a break at a Dallas Fed conference on technology in Dallas, Texas, U.S., May 23, 2019. REUTERS/Ann Saphir

Barkin said the unique impact of the virus may generate false positives on the state of the labor market. For example, Barkin said employers have been bidding up wages as they face difficulty finding workers (normally signs of a tight labor market).

But the Richmond Fed chief said the “temporary mismatch” is in part due to the lack of available workers to staff health care, tech, or manufacturing companies in small towns. Barkin said for comparison, the surplus jobs are focused among high-contact service workers in the bigger cities.

Barkin said fiscal policy should prioritize those left out by this mismatch, a concern as critical unemployment benefits like Pandemic Emergency Unemployment Compensation (for the longer-term unemployed) and Pandemic Unemployment Assistance (for gig and contract workers) expire on December 26.

“Those are people close to the edge and they will need a bridge of some sort,” Barkin said.

The Fed’s next policy-setting meeting is scheduled for December 15 and 16.

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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