Central Banks

Tuesday, July 7, 2020 - 15:53

MNI POLICY: Fed's Daly, Barkin See Lasting Job Market Weakness


--Inflation Will Also Remain Subdued Due to Demand Shock

Regional Federal Reserve Bank presidents Mary Daly and Tom Barkin on Tuesday highlighted risks that the U.S. job market won't return to normal and inflation will remain subdued through the Covid-19 restart.

"I'm assuming that we will level off at some level that's not where we want it to be," because people may not visit stores and buy as much as they did before, Daly said of the labor market. "It's nowhere close to where we need it to be" to achieve the Fed's full employment mandate, she said.

"I agree with Mary -- I don't believe my favorite restaurant is going be to be back to full staff, I don't think my favorite retailer is going to be back to full staff, because I just don't think demand will be the same," Barkin said.

That shock to demand will hold down inflation even with stimulus coming from Congress and the Fed's balance sheet expansion, Barkin said. "My base case is not that optimistic, and so I still think the amount of fiscal stimulus is being put into a situation where there is still a lot of need."

"We were struggling to get inflation sustainably up to 2%" before the pandemic, Daly said. "A little inflation for us would be a welcome thing" and "we have the tools to bring inflation down."

Daly and Barkin of the San Francisco and Richmond Fed banks, respectively, spoke during in a webcast hosted by NABE. Both rotate into voting positions on the FOMC next year. They are tracking real-time credit and debit card spending to see how much is being spent, how often people are leaving home to shop and whether consumers are buying essentials or discretionary items.

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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