Fmr. OMB Chief Economist: economic growth needs to be 'ultimate priority' for the Fed
Joseph Minarik, The Conference Board Chief Policy Economist & Former OMB Chief Economist under President Clinton, joins Yahoo Finance’s Seana Smith and Adam Shapiro to discuss the Fed's latest efforts to bolster the U.S. economy amid the coronavirus pandemic.
Video Transcript
JOSEPH MINARIK: The most important message from the Fed really has been that they will do what it takes. The concern in the longer term about inflation-- I mean, we're really looking way down the road it seems to me. We've had important forces, important changes in the economy, intense competition, a very hard time. You ask any producer about the possibility of raising prices. Do they have pricing power? The answer is going to be no.
The Fed has got to keep its foot to the floor, its right foot, to get the economy moving again. That is the ultimate priority here. There's a lot of structural dislocation going on beneath the surface. It's going to be difficult to get economic growth going again. And the Fed has got to maintain confidence, and it's got to maintain a sense that we are going to have liquidity on those key markets for securities of governments and businesses.
ADAM SHAPIRO: Well, Joe, it's Adam, and they've already said, you know, they're all in for whatever it takes. So is there-- because they haven't actually initiated some of the lending facilities yet. They've just said we're there with a half-trillion dollars ready to go. Is that sufficient? Is just knowing that they've got my back, is that sufficient? They never have to actually spend a dime?
JOSEPH MINARIK: I don't think that's true, Adam. I think that's a really good question. But the fact that the Fed is extending its tools beyond the parts of the economy where it has previously acted in extreme situations-- so large businesses, and we're now talking about getting down to smaller businesses that can offer their own securities but in markets that might not be tremendously liquid, and even to buying loans of even smaller businesses; getting into the government markets, including of relatively smaller governments, taking some risks in terms of potential defaults because they are more concerned about stepping too lightly than stepping too strongly. I think that those increases in extent of their past behavior is probably going to say that they are going to need to act and not merely to speak.
SEANA SMITH: Joe, do you think the current policies, do you think they're enough in what we're seeing to support the eventual recovery? Because one of the things in your notes that stuck out to me was the fact that you were saying conventional monetary policy is clearly, at best, just a partial remedy.
JOSEPH MINARIK: The Fed is doing a good job of backing up the Treasury and vice versa. I think that one of the gratifying things in this outlook is the fact that you have no apparent friction between the treasury and the Federal Reserve. I think that's extremely important.
Ultimately how far this goes, I'm afraid to echo one of your earlier guests. We really are subject to developments in the health-care technology and in the public health. The longer this goes, the harder it's going to be. The Federal Reserve is going to have to be stronger and stronger, keeping entities like smaller units of government and smaller businesses going. But that is going to be dependent upon the public-health environment.
ADAM SHAPIRO: Joe, real quick, I noticed all those car toys behind you. And I ask this question because sometimes you got to let a company go out of business, like Studebaker. Yet the Treasury Department is now involved with the Fed. Could the Treasury inappropriately try to influence decisions at the Fed?
JOSEPH MINARIK: Could they do that? Yes. I think that what we've seen so far from the Federal Reserve is a rigid application of appropriate standards. They have not wanted to be pushed around. They've shown resistance. They've behaved well, I think, in an environment where they took some criticism, and they took it on the chin, and they were quiet. But they have made, I think, sound decisions, and that will serve us well, and that will serve the economy well if they can manage to maintain those standards going forward. That's my personal judgment.
SEANA SMITH: Hey, Joe, what do you think-- I mean, this is just uncharted territory, really, for everyone who's involved at this point. There's no plans in place. There are no maps. What would you say is the biggest single challenge for the Fed at this point, quickly?
JOSEPH MINARIK: The most important thing is maintaining liquidity and maintaining confidence, but that is going to require taking some steps, as you say, into uncharted territory, and then they're going to have to find their way back. Let's keep this economy going. Worry about the return trip later, but the return trip will be difficult.
SEANA SMITH: All right, Joseph Minarik, thanks so much for joining us.
