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Fed’s Kashkari warns of ‘enormous consequences’ if fiscal stimulus is not approved — and says there are no ‘moral hazards’ to support more aid

neel kashkari
Neel Kashkari.

  • The US economy will face “enormous” consequences if further fiscal stimulus is not approved, and there are no “moral hazards” to provide more aid, Minneapolis Federal Reserve President Neel Kashkari told CNBC.
  • “There are enormous consequences if we just let things go, and the downturn will end up being much worse,” Kashkari said on Wednesday.
  • The Fed president said that unlike the financial crisis of 2008-09, the pandemic was not born out of a weakness in the financial system, suggesting that there should be less qualms about using public money to support the airlines and other industries.
  • “There are millions of Americans who are affected by this, and I think just letting them deal with it on their own, I don’t think it’s the right thing to do and I don’t think it’s good for the economy overall,” he said.
  • Visit Business Insider’s homepage for more stories.

 

Minneapolis Federal Reserve president Neel Kashkari told CNBC on Wednesday the US economy will face “enormous consequences” without a new federal coronavirus relief package.

“There are enormous consequences if we just let things go, and the downturn will end up being much worse,” Kashkari said on CNBC’s “Squawk Box.”

“If we don’t support people who have lost their jobs, then they can’t pay their bills and then it ripples through the economy and the downturn is much worse than it needs to be.”

Kashkari is a voter on this year’s Federal Open Market Committee, which sets US monetary policy, and is one of its more dovish members. 

“Whatever assistance can be provided to people who have lost their jobs is important,” Kashkari said. “Whatever assistance can be provided to small businesses that have been affected by the pandemic is important, and supporting state and local governments, whose revenues have been hammered by the COVID crisis, that also is important, because they employ a lot of people.”

Read More: JPMorgan’s $1.9 trillion asset management firm shares the 5 biggest opportunities it’s recommending for clients across markets during the fourth quarter

Kashkari said that unlike the financial crisis of 2008-09, the pandemic does not pose a “moral hazard” situation, in which public money cannot be used to support jobs in the hard-hit airline industry and other struggling sectors.

“This is a natural disaster effectively hitting the US economy,” he said, adding he sees no moral hazard in being generous.

“There are millions of Americans who are affected by this, and I think just letting them deal with it on their own, I don’t think it’s the right thing to do and I don’t think it’s good for the economy overall,” Kashkari said.

On Tuesday, President Donald Trump abruptly ended stimulus negotiations, prompting US stocks to fall as much as 1.5%, only hours after Fed chairman Jerome Powell warned of “tragic” consequences without further stimulus. 

Democrat congresswoman Alexandria Ocasio-Cortez blasted Trump’s decision, and said that without further federal spending, the US economy would be “staring down the barrel” of one of the largest mass evictions in American history since the Great Depression. 

But on the same night, Trump appeared to change tack by tweeting that he was open to signing legislation that provides Americans with a $1,200 stimulus check, and aid to both airlines and small businesses, in an apparent message to Democrat House Speaker Nancy Pelosi.

In one tweet, Trump said: “If I am sent a Stand Alone Bill for Stimulus Checks ($1,200), they will go out to our great people IMMEDIATELY. I am ready to sign right now. Are you listening Nancy?”

US stocks climbed as much as 1.3% on Wednesday. 

Read more: JPMorgan’s $1.9 trillion asset management firm shares the 5 biggest opportunities it’s recommending for clients across markets during the fourth quarter

Read the original article on Business Insider

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