Fed officials warn on urgency of stimulus deal

Yahoo Finance's Brian Sozzi, Alexis Christoforous, and Brian Cheung discuss Federal Reserve officials' recent comments on how important fiscal policy is for the COVID-19 crisis.

Video Transcript

BRIAN SOZZI: Welcome back to The First Trade. Federal Reserve officials are urging how badly the US needs increased government spending as the country continues to see a resurgence in the spread of COVID-19. Yahoo Finance Fed correspondent Brian Cheung is here with the details. Brian?

BRIAN CHEUNG: Well, Brian, we heard from over five Federal Reserve officials yesterday, all of them opining on how fiscal policy is really in control now of the government response to the COVID-19 crisis. We continue to see cases, and that's spiking in the United States. There is the concern that more support will be needed from Capitol Hill.

You had Chicago Fed President Charlie Evans saying that failure to pass any sort of additional stimulus here could, quote, "lower aggregate demand." You also have Robert Kaplan from the Dallas Fed saying that unemployment assistance specifically would help bolster consumer spending and Thomas Barkin from the Richmond Fed saying, quote, "it would be pretty traumatic," end quote, to pull back on that type of support. Keep in mind, the federal government has already pulled back on that support because in almost every state, the extra $600 per week of unemployment insurance assistance did expire last week.

Now, there's also concerns over just the rise of the virus itself. You heard Chairman Powell speak about this in that FOMC meeting last Wednesday. But you have other Fed officials, like Minneapolis Fed President Neel Kashkari actually tweeting yesterday, saying, quote, "Do a hard lockdown now for six weeks to get the virus under control, then open schools in late September. I haven't heard any other way to reopen safely that sounds remotely plausible given rampant spread in many areas," end quote.

He is the first federal official to call for a shutdown of the economy again. This is something, however, I want to note, that his colleagues have not agreed with. We heard Dallas Fed President Robert Kaplan speaking yesterday morning on Bloomberg TV saying the virus can be managed without another shutdown as long as everyone wears masks.

So a number of diverging views on the FOMC about the epidemiological approach to this. But broadly speaking, it seems like Federal Reserve officials are saying, we've done all we can on the monetary policy side of things. It's time for fiscal policy to step up to the plate.

ALEXIS CHRISTOFOROUS: Brian, have they talked at all about the amount of stimulus, particularly those enhanced unemployment benefits? Because we know many Republicans, while they want to extend it, are saying it shouldn't remain being that $600 a week. Did they weigh in on how much it should be, these Fed speakers?

BRIAN CHEUNG: Well, you know, Alexis, that the negotiations are still continuing on Capitol Hill for what the ultimate design of the unemployment insurance will be. It seems like there is some bipartisan support for extra unemployment insurance in some form, although the exact number and how it will be done is still being debated. Federal Reserve officials have always been very hesitant to speak at all about fiscal policy. In fact, it's pretty remarkable at all that you have Federal Reserve officials saying one way or another that they should be doing or following some sort of policy.

So beyond that, it's not expected that they'll have any sort of numbers. I wouldn't expect to see any Fed president say it should be $400 or $500 or $600. But I think all of them will probably universally agree in saying at least some support is needed because as we've seen from the rising number of coronavirus cases in the country, you still need to support these workers who are unable to go to work, which is still the case in many corners of this country.

BRIAN SOZZI: All right, Brian Cheung, thanks so much.