Finance News

Fed & # 39; s Kashkari warns that delaying the stimulus can have "huge penalties".

Minneapolis Federal Reserve President Neel Kashkari warned as the youngest central banker not to continue stimulating the US economy, saying the cost of doing nothing could be significant.

As the impasse in Washington deepens, Kashkari told CNBC that workers, businesses and governments need more money from Congress.

"There are huge consequences if we just let things go and the downturn will be a lot worse," he said on Squawk Box. "If we don't support people who have lost their jobs, they won't be able to pay their bills and then the economy will ripple and the downturn will be far worse than necessary."

Talks over more Washington funds halted on Tuesday when President Donald Trump ordered his negotiators to step down until after the November election. However, Trump later changed his stance, pushing for funding specifically for the aviation industry and a general phased approach that the Democrats had previously opposed.

Fed officials have warned of a failure.

Ahead of Trump's move, Fed Chairman Jerome Powell said Tuesday that additional fiscal aid was needed and that there was little concern about doing too much. Following Trump's instruction, Cleveland Fed president Loretta Mester told CNBC that delaying the stimulus would mean a "much slower" recovery.

"It is important what support can be given to people who have lost their jobs," said Kashkari. "Whatever support can be given to small businesses affected by the pandemic is important, and support from state and local governments whose revenues have been strained by the Covid crisis is also important as they employ many people . "

Kashkari added that the nature of the downturn caused solely by the coronavirus pandemic and not due to systemic weakness like during the financial crisis means that using public funds to rescue private industry is not a particular "moral hazard".

Congress has approved more than $ 2 trillion in funding to date, although most of that allocation has expired. For its part, the Fed has cut interest rates and implemented more than a dozen credit and market function programs.

"There are millions of Americans who are affected and I think they are just letting themselves get involved. I don't think it's the right thing, and I don't think it's good for the economy as a whole." Said Kashkari.

Related Articles