The U.S. economy seems to be holding up despite a surge in Covid-19 cases and hospitalizations, clouding the case for more monetary stimulus, Federal Reserve Bank of Richmond President Thomas Barkin said.
‘’It’s hard to find a huge drop in the real-time data,” Barkin told reporters Monday in a press briefing before a University of South Carolina virtual speech. “I’m thinking about credit-card spending which I get to see every week. It really hasn’t taken a step back yet.”
The Fed’s monthly asset purchases of $120 billion already are providing a pretty strong stimulus to the economy, in addition to near-zero interest rates, Barkin said. The Federal Open Market Committee is considering changes to its asset program, including new guidance, the minutes of its last meeting showed.
“I’m intrigued by what the Bank of Canada has done in terms of duration extension,” Barkin said. “I think that is an interesting technique if we decide the economy needs some more stimulus.”
Last month the Bank of Canada made a technical adjustment to its bond purchase program, scaling back the buying of government bonds while shifting purchases to longer-term securities.
Yet with long-term U.S. Treasury yields below 1%, a move to push down rates further might have little effect, he said.
“We have a relatively flat yield curve at relatively low levels,” he said. “It is not compellingly obvious to me that the big challenge we have right now is around how do we lower Treasuries another few basis points.”
Americans’ savings built up over the last nine months from fiscal stimulus and from cutting spending while sheltered at home will serve as a backstop for the economy, 70% of which is consumer spending, Barkin said.
The Richmond Fed leader, who is an FOMC voter next year, said the economy faces near-term constraints from the rising virus, coupled with possible upside surprise from vaccinations in 2021.
“It is easy to imagine that this will lead the recovery to flatten over the next few months as we try to work our way through the winter,” he said. “I’m also reasonably hopeful on the vaccine for the virus. If that comes in say at the end of the second quarter, then you can imagine some light at the end of the tunnel.”