WASHINGTON — As president of the Federal Reserve Bank of Richmond since 2018, Tom Barkin is a member of the Fed’s powerful committee that sets interest rates. The committee has been engaged this year in an extraordinary drive to support the economy and the financial system through ultra-low rates and new lending programs designed to keep credit markets running smoothly and encourage companies and households to borrow and spend.
Barkin takes part in the rate-setting committee’s discussions, though under the Fed’s rotation system, he is not a voting member of the committee this year.
The Associated Press spoke recently with Barkin about the unusual uncertainty surrounding the economic outlook, how the coronavirus may be affecting financial inequality and the economy’s ongoing need for rescue aid.
Q: What’s the biggest risk facing the economy right now?
A: The biggest risk is on the health side. Will we have a vaccine or a treatment or will we have a set of infections that causes consumers to withdraw from the economy again? As I’ve talked to my contacts in the district, (among) firms, you see such a wide range of uncertainty that it does lead to a level of caution on things like hiring, on things like investing, on things like spending. And so I do think, similarly on the consumer side, how are you going to engage in commerce if you don’t know if you’re going to be putting your family at risk?
Q: Will inequalities in income or wealth slow the recovery?
A: One of the tragic things about this virus is it’s gone very hard after low-end service-level personal contact jobs. And this question of how many of those jobs will recover if restaurants reopen with only 50 or 60 or 70 per cent capacity — you’re going to lose restaurant jobs. If amusement parks and entertainment venues are not able to come back at the same scale or density, you’re going to lose those sorts of lower-pay service-level jobs. And so I do think there is a real risk there — that the normal we get back to will be less robust than the one we just left.
Q: Does the economy need more stimulus from the government or can it recover on its own?
A: One of my concerns as I look at the economy over the next six months, 12 months, 18 months, is whether we will have enough support from (from Congress) to get us back to where we were. That support could be things like deployment of broadband to enhance online learning. It could be things like making Pell Grants available for (job training) programs. My understanding of 2010, 2011, 2012 is that state and local governments had to cut back. And of course, you had the federal government eventually also cutting back. And it would’ve been helpful to have those entities continuing to spend into the recovery. And we’ll need that here as well.
Interviewed by Christopher Rugaber.
Edited for clarity and length.
Christopher Rugaber, The Associated Press
Liberal government to spend $10B on infrastructure to fuel pandemic economic recovery – CBC.ca
The Liberal government is spending $10 billion on infrastructure initiatives such as broadband, clean energy and agricultural projects — part of a plan to boost growth and create one million jobs after the pandemic pummelled the economy.
Prime Minister Justin Trudeau and Infrastructure Minister Catherine McKenna are announcing details of the Canada Infrastructure Bank (CIB) plan during a news conference today and CBCNews.ca is carrying it live.
Trudeau said the three-year plan is expected to create 60,000 jobs.
“With smart, targeted investments, we can get people back on the job, grow the economy while building a healthy, sustainable future for everyone,” he said.
The plan has five major initiatives:
- $2.5 billion for clean power to support renewable generation and storage and to transmit clean electricity between provinces, territories and regions, including northern and Indigenous communities.
- $2 billion to help connect about 750,000 homes and small businesses to broadband in under-served communities.
- $2 billion for large-scale energy efficient building retrofits.
- $1.5 billion for agriculture irrigation projects to boost production, strengthen Canada’s food security and expand export opportunities.
- $1.5 billion to speed up the adoption of zero-emission buses and charging infrastructure.
The Liberal government’s throne speech promised to create more than one million jobs to rebuild from the pandemic.
The $10 billion announced today is part of the CIB’s $35-billion pot of federal investments.
McKenna said the pandemic created a time of crisis, but also a time of opportunity to rebuild with stronger, cleaner, more inclusive communities. She said the investments align with the federal vision to build clean, modern communities.
“Canada has an opportunity to be the low-carbon economy that global investors beat a path to,” she said.
CIB chair Michael Sabia said the federal funding is meant to leverage additional money from private and institutional investors, stretching each public dollar into several.
“That is value for taxpayers,” he said.
P.E.I. economy in 'better spot' than anticipated, says finance minister – CBC.ca
A fiscal update for P.E.I. delivered Wednesday shows the Island coping relatively well with the economic consequences of the pandemic, says Finance Minister Darlene Compton.
Compton spoke to Island Morning host Mitch Cormier about the update Thursday.
“We are actually in a better spot than we thought we would be,” Compton said.
“There’s some good news stories through this. Construction is up 7.3 per cent year to date. Housing starts are up 13 per cent through the second quarter of 2020. Farm cash receipts are at a record high.”
The government is forecasting the economy will shrink 3.9 per cent in 2020, an improvement over the spring projection of 5.1 per cent. But the government’s projected deficit is climbing, up $5.4 million to $178.1 million.
The sector suffering the most is tourism.
“Accommodation, food and beverage services, are definitely down and that’s the biggest pocket that is struggling through this pandemic,” said Compton.
The summer season is looking like it could be down as much as 60 per cent. Growth in other sectors, however, is balancing that out for the economy overall, said Compton.
Chaotic labour economy
The labour economy has been volatile.
Thousands left the labour market in April, and returned in large numbers in June only to leave again in the summer months. The unemployment rate has followed a similar path up and down, rising as high as 15.2 per cent in June and remaining in double digits since April.
Compton said she expects job numbers on the Island to return to something like a pre-pandemic norm this fall, even as the tourism sector continues to struggle.
As for the rising deficit, there are two main factors, she said.
One, the province has seen fewer federal dollars than expected, because some Build Canada projects are delayed. That has decreased projected revenue.
On the expenses side, pandemic costs have been higher than anticipated. That includes the cost of reopening schools.
The province has set aside a $65 million contingency fund in the event of a second wave of COVID-19, said Compton.
Another factor working in the province’s favour, said Compton, is that bond raters have given P.E.I. stable ratings, which means interest rates on the debt won’t change. That will help keep finances under control.
More from CBC P.E.I.
31.4% spring slide for a US economy likely to shrink in 2020 – Yahoo Canada Finance
WASHINGTON — The U.S. economy plunged at an unprecedented rate this spring and even with a record rebound expected in the just-ended third quarter, the U.S. economy will likely shrink this year, the first time that has happened since the Great Recession.
The gross domestic product, the economy’s total output of goods and services, fell at a rate of 31.4% in the April-June quarter, only slightly changed from the 31.7% drop estimated one month ago, the Commerce Department reported Wednesday.
The government’s last look at the second quarter showed a decline that was more than three times larger than the fall of 10% in the first quarter of 1958 when Dwight Eisenhower was president, which had been the largest decline in U.S. history.
Economists believe the economy will expand at an annual rate of 30% in the current quarter as businesses have re-opened and millions of people have gone back to work. That would shatter the old record for a quarterly GDP increase, a 16.7% surge in the first quarter of 1950 when Harry Truman was president.
The government will not release its July-September GDP report until Oct. 29, just five days before the presidential election.
While President Donald Trump is counting on an economic rebound to convince voters to give him a second term, economists said any such bounce back this year is a longshot.
Economists are forecasting that growth will slow significantly in the final three months of this year to a rate of around 4% and the U.S. could actually topple back into a recession if Congress fails to pass another stimulus measure or if there is a resurgence of COVID-19. There are upticks in infections occurring right now in some regions of the country, including New York.
“There are a lot of potential pitfalls out there,” said Gus Faucher, chief economist at PNC Financial Services. “We are still dealing with a number of significant reductions because of the pandemic.”
In 2020, economists expect GDP to fall by around 4% , which would mark the first annual decline in GDP since a drop of 2.5% in 2009 during the recession triggered by the 2008 financial crisis.
“With economic momentum cooling, fiscal stimulus expiring, flu season approaching and election uncertainty rising, the main question is how strong the labour market will be going into the fourth quarter,” said Gregory Daco, chief U.S. economist at Oxford Economics.
“With the prospect of additinal fiscal aid dwindling, consumers, businesses and local governments will have to fend for themselves in the coming months,” Daco said.
The Trump administration is forecasting solid growth in coming quarters that will restore all of the output lost to the pandemic. Yet most economists believe it could take some time for all the lost output to be restored and they don’t rule out a return to shrinking GDP if no further government support is forthcoming.
So far this year, the economy fell at a 5% rate in the first quarter, signalling an end to a nearly 11-year-long economic expansion, the longest in U.S. history. That drop was followed by the second quarter decline of 31.4%, which was initially estimated two months ago as a drop of 32.9%, and then revised to a decline of 31.7% last month.
The slight upward revision in this report reflected less of a plunge in consumer spending than had been estimated. It was still a record fall at a rate of 33.2%, but last month projections were for a decline of 34.1%. This improvement was offset somewhat by downward revisions to exports and to business investment.
Martin Crutsinger, The Associated Press
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