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The fed is in the business of lending and it isn’t in the business of spending: Economist

Joseph Minarik, Conference Board Chief Public Policy Economist Fmr. OMB Chief Economist & Chief Economist to Pres. Clinton joins the On the Move panel to discuss the fed response to the COVID-19 crisis.

Video Transcript

- Joseph, thank you for joining us. We saw a little bit of a downtick in the confidence numbers reported by the conference board this morning-- so perhaps reflecting the concern over the expiration of the federal stimulus moneys. At the same time, the Fed said they're going to extend their lending programs to the end of the year.

I mean, when it comes to the Fed-- let's take that one first. It feels like that they did not have a choice, that this is something that was expected, and that they had to do to keep that support underlying the economy, would you say?

JOSEPH MINARIK: Absolutely. The Federal Reserve right now is in communications mode. They have pulled out of the file cabinet just about every idea they could come up with. At this point, the only thing that they can do is to continue to communicate that they are there to support this economy.

Chairman Powell said recently, I'm not even thinking about thinking about removing the support that we're providing. So he's being very explicit about that. There probably are some changes that could be made to individual lending facilities to make them more accessible, to make the terms easier. But basically, they are keeping the pedal to the medal at this point. And this economy is indeed of that kind of support.

ADAM SHAPIRO: Joseph, I'm curious about something a guest told us, which was the upper incomes have cut spending more than 10%. But the bottom three quintiles, it's only been cut by about 1.9%, meaning that the lowest income among us are still spending. And stimulus clearly paved the way for that. Do we see that reflected in any way in the Conference Board's consumer confidence numbers? And then also, wouldn't Capitol Hill get the message? Hey, save your own skins. Send them money to spend.

JOSEPH MINARIK: First of all, in terms of the confidence numbers, one of the things that did stand out was the top five states for rising infections right now had markedly larger than average reductions in confidence in the coming situation. A lot of this is driven by the pandemic. But beyond that, in terms of public policy, save your own skin-- this is a game of chicken going on here. You have the two sides with somewhat different perspectives on how to provide support.

But at the end of the day, they have got to miss each other or they're both going to crash. I really do believe that they're trying to find a way to save face on both sides and find a solution. You do not want to be on the wrong side of this issue unless you have a congressional district. If you're in the House and you have a very affluent district that's doing fine, you might think that you can get away with this. But almost everybody is at risk if these programs are not continued in one form or another.

- Joe, without all of the back and forth here, what do you think when it comes to the individual payments? What do you think is the magic minimum number that needs to be in there to keep people spending, to keep the economy at the very least limping along?

JOSEPH MINARIK: There are two parts here-- there is the check, the individual payment, and then there's the unemployment compensation add on. The unemployment compensation program is run by the states. The states have very antiquated systems for managing that. The reason why the benefit turned out to be what it was was because of the problems of states implementing what might have been a more finely tuned benefit that would provide support to individuals but not exceed their prior wages.

If we're going to cut back on the unemployment benefits, to some extent what you will find, is that that individual payment, that check to everybody below the median income, is going to have to be larger, to make up at least for a while for the hit on the unemployment compensation benefit. So really I think the two are almost a trade off.

And then there's the third part going on, which is the additional unemployment benefits for gig workers, self-employed people, who previously weren't eligible for unemployment compensation, don't have records of their earnings. And that program is especially rickety. And it's that extra benefit under unemployment compensation that helps those people out, which makes it harder to cut back on that program.

It's an administrative problem. We have an economic problem going on. And on top of all of that, we have a political jousting match. And it's probably fun to watch, but it's not good for the economy.

- Yeah, in addition to the political jousting match, of course, there are the social inequities that have come to light during this time too. When you think about lawmakers on the Hill but also Fed Chair Powell and various Fed presidents having to speak to this issue that the dichotomy has further widened during this current period, from an economic perspective, how can people of disadvantaged communities-- specifically black, latinx folks-- what are the structural ways that they can be advancing economically? Is this something that you're talking about with colleagues? I know sometimes it feels like a flash in the pan. But I'm curious if there are any existing frameworks that you feel like you can implement here.

JOSEPH MINARIK: Well, the Fed of course is in the business of lending. It isn't in the business of spending, as the Fed presidents have been saying and the members of the board in recent weeks. What they are trying to do is to get employment back. And they do that in a direct way, by providing credit. There are entities in this economy, of course, for whom cash and a corresponding liability on their balance sheet is not necessarily a good deal. Entities that have longer term financial issues can't handle those additional liabilities. So they are restricted.

To help those people out, you've got to go to the fiscal side. And to try to provide assistance over the longer term, we have been trying-- we, Washington-- have been trying to narrow inequities for a long, long time. At the end of the day, the way to do that is to provide people with skills. It's learning how to fish. It's not handing you a fish.

And what that means is trying to take advantage of the current situation to provide training. But again, we've been trying to do that for a long time. And it's really a tough row to hoe to find ways to get people who have gone through an educational system that hasn't helped them an awful lot and make up for all that lost time plus giving them additional skills that they can take into the marketplace. We've got an additional motivation to do it now, but that doesn't make the task any easier. It's going to be hard.

- It will. Hopefully, we will make some progress on that. Joseph Minarik, thank you for your perspective. You are the conference board chief public policy economist. Thank you.