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Philadelphia Fed President Patrick Harker speaks with Yahoo Finance [Transcript]

Brian Cheung
·Anchor/Reporter
·14 min read

Patrick Harker, president of the Federal Reserve Bank of Philadelphia, spoke with Yahoo Finance on April 17 to discuss his economic outlook and the Fed’s recent $2.3 trillion effort to support the U.S. economy as the coronavirus continues to grip the nation.

Below is a transcript of his appearance:

JULIE HYMAN: We are joined to talk about that, by the president of the Federal Reserve Bank of Philadelphia Patrick Harker, as well as our own Brian Cheung. President Harker thank you so much for joining us.

I want to bring up a paper that was written by researchers at the Philly fed, and it found that a full quarter of all workers in the United States, we're talking about, about 38 million folks are defined as “at-risk” because their jobs involve working in close proximity with other people and those jobs also tend to be lower-income, but at the same time are pivotal to the households that they're a part of.

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Does that mean those jobs are not coming back in the short or even medium term, after the reopening of the economy? And then what are the economic implications of that?

PATRICK HARKER: Thank you Julie for having me. So you're referring to a project we have which is really a three part project. This is the first of three on the impact that this crisis is having on low-income families and communities. So the first paper you just mentioned, is the impact on workers. The second will be the impact on small businesses. And the third, on neighborhoods and communities. So the physical aspect of this. So, the answer to the question is, those jobs where physical distancing is hard, have gone away to a large extent, including though in some states like our state in Pennsylvania, where construction that is not life-sustaining — that is our hospital etc. — is shut down as well. So what you saw in this report, one of the things we think a lot about our service workers but a lot of construction workers are now out of work right now because they can't do those projects.

So as you think about ramping the economy back up, when we're able to do that safely. And again, our hearts go out to the people who are suffering this all across the country. So as we're able to do this safely and not cause even more problems, we're going to do that in a staged way. Obviously some industries where social distancing is easier — possibly construction — is going to be far in advance of opening up big arenas for events. So, I think, most of these jobs will come back in some form. It may be very slow for certain industries.

One of the things I think about is areas like travel and tourism. Well, you know, that may take a little while to rebound for that maybe companies are looking at their bottom line saying, “maybe we shouldn’t travel as much.” So I think there are a lot of factors at play here. And but the main factor that is determining when and how the economy reopens is how well we get control of this virus.

BRIAN CHEUNG: Hi President Harker, it's Brian Cheung. Thanks for joining us. I want to ask about the lifeline that's been provided to those businesses. We saw the Philly Fed manufacturing survey showing the weakest economic outlook since 1980 and a lot of these smaller firms are rushing to get PPP loans, but the money's out, and the Fed’s Main Street Lending Facility is not up yet even though we have the details of it. So is there a concern at least from what you're seeing in the third district that these businesses who haven't gotten a lifeline might not be able to get a lifeline and what the consequences of that might be if these businesses had continued to go, let's say a few other weeks without any sort of funding?

PATRICK HARKER: On the manufacturing survey, yes the headline was bad. I mean historically bad, but the future activity index is actually still positive. So while manufacturers in our district think that the situation is what it is, dire, they're optimistic that they can come back pretty quickly. So, with that said, there's no question that trying to get money into the hands of particularly, small businesses, the ones are my neighborhood where I’m sitting right now, are really important.

And so there's a couple things one is, as you know with the PPP those funds have been depleted that were appropriated by Congress. So, to me it makes sense to add some more funds there because there's clearly the demand. Then for larger firms, the Main Street Program that the Fed is launching will be able to help there, through that facility. But in all these cases we are committed, I can say for myself, I'm committed at the Fed to doing what it takes to help us get through this period, because we have to try to get through this period with as much of the economic infrastructure that we have intact. That will help us to recover more quickly but if we see big pockets of the economy where that infrastructure is damaged, it's going to take longer.

BRIAN CHEUNG: President Harker, broadly, do you then have a modal outlook for the US economy we had the IMF with a projection for a contraction US GDP of 5.9% for the year 2020. Some of your colleagues have floated figures of their own as well. Do you have projections on unemployment or GDP for the year?

PATRICK HARKER: So again this is all a moving target with many, many caveats and many, many grains of salt, because we just don't know how medical science — the innovation, medical science going to create to help us deal with this crisis. If that happens sooner, the damage is less, but right now we're looking at year-over-year probably around 5% hit on GDP. This quarter will be very bad. The next quarter will most likely be negative. And then start to come out of that in the third quarter and unemployment could hit in the mid-teens, absolutely.

ADAM SHAPIRO: President Harker, it's Adam Shapiro. I was curious about what is also a moving target that is escalating and that's people not paying their rent whether they're a small business or a renter or even mortgages and as that begins to ramp up, we're going to see the equivalent of the commercial real estate bonds that had been issued perhaps have to get reset, which facility at the Fed would address this and how concerned should we be about that?

PATRICK HARKER: One is, obviously, in the [mortgage-backed securities] market. The other is just the mortgage, mortgage servicers themselves. On the mortgage servicers, it's an area that we at least are starting to think about, along with some colleagues around the system. What, if anything, I ask, we should do in that case on the MBS market. We're strongly committed to support that market and you’ve seen that in our actions in the purchases we've made to date. But also in many of the facilities, it depends on the actual facility. There are many facilities that could support those markets.

The good news is to the banks to date. I've been very impressed through our supervisory functions at the Fed, we think a lot about the monetary policy function, but our supervisory functions, working with a bank. The banks have been, in our district, very good about thinking about forbearance programs to help individuals, and those small landlords — as many of them are not large corporations or small landlords — help get through this period.

BRIAN CHEUNG: President Harker, it seems like the whole calendar doesn't really matter anymore but people forget that there is a scheduled FOMC meeting coming up on April 29. You are a voter this year. I'm wondering what tools further could the Fed deploy? You were just talking about mortgage servicers, are there any other types of things you could see the Fed addressing and even on the flip side, are there any sort of tools that you think the Fed won't be deploying right now? Whether it's negative interest rates, yield curve control, unconventional policy tools like that?


PATRICK HARKER: We have to bucket these, these issues in two big buckets. One is our traditional monetary policy tools: interest rates and interest rate controls you're saying. That right now, in my mind, we've taken rates down to zero, is not due to high rates that we're not seeing economic activity is because of this unprecedented healthcare crisis. And so we have the accommodation, I think right now, needed as we start to come out of this, but we're not going to see that activity, until we see the constraints released and relaxed on companies and individuals re-engaging in the economy. So there are a host — right now it's way too premature to think about things like yield curve control and so forth, we need to see how we come out of this economy.

The second thing is: the facilities. What we're putting in place to support market functioning and I want to emphasize the whole purpose of all the facilities we put in place is not to pick winners and losers, it is to get these markets functioning broadly, and to help support, with our partners through the Board of Governors authority, 13(3) authority with the Secretary of the Treasury, individuals and firms across the spectrum, particularly small firms.

So the two areas, I think about, I can only emphasize, is it partly my background too, that we're hearing a lot about, so I can't tell you there's a facility in the offing, but two of the issues that we're hearing a lot about our micro businesses, very small businesses like the one down the street: my dry cleaner. It's just the mom and pop operation, literally, so they may have access to some of the programs they may not depending on whether they run their business through their personal checking account, or a business checking account. Alright so, those kind of issues are still out there. And so a lot of small nonprofits, etc. There's a lot of small players that are important to the fabric of a community that we need to try to support somehow. And I don't know exactly what that looks like.

The second area that I have concern about, because I used to be a university president before taking this role, universities and medical institutions and large nonprofits also have significant challenges. What universities are facing right now in terms of their this year budget deficit and the go forward with looking next year and years out, and it's pretty daunting. I mean, so how do we make sure that it's not just about the university, it's about the young people in America getting the education they need to build the economy we all want for themselves and for us as a society. I worry a lot about that and so that's another area of where we're thinking a lot about what, if anything we could do.

JULIE HYMAN: And what can the Federal Reserve do because on that front. It seems like that would be more an issue perhaps for Congress, perhaps for the universities themselves to get together and figure out how to sort of restructure. What can, what role can the Federal Reserve play in that department?

PATRICK HARKER: Some of the large medical institutions and universities and there's tremendous overlap of course there because a lot of major universities have medical centers and medical systems. They can be eligible for a variety of programs, put in place. So that's one area of risk thinking about but you're right I mean it is an area that Congress could and maybe will take action on, and that is not in our purview obviously that's a fiscal policy issue, but it is something we just want to understand it and start to look at what the various options are at this point.

BRIAN CHEUNG: President Harker, so we looked forward to the April 29 FOMC but I want to look backwards towards the March 15 emergency announcement on that Sunday, walk us through that meeting you joined the Philly Fed in 2015 so this is the first major crisis that you've been through, at the Fed. Did you support slashing rates to zero, then what was it kind of like to scramble everyone together last minute?

PATRICK HARKER: We knew when we saw what was happening and how this virus was shaking up the whole world and coming at us in the United States in an unprecedented way, that we're going to have to take some action so I wouldn’t say it was a surprise. There are lots of conversations before that meeting, obviously, so we were well prepared to make that decision.

I fully supported that decision, all the decisions made at that meeting, we need to do what we need to do to minimize the damage to the economic infrastructure of this country and to help get us out of this as quickly as possible, it is going to take some time to get out of this I'm not a fan of the V-shaped recovery I don't think it'll be that “V.” But the goal is to make it a “U” but a very narrow “U.”

BRIAN CHEUNG: And then lastly you have conversations with district contacts all the time. Small businesses, households — I've been asking a lot of other Fed presidents who have appeared on Yahoo Finance the same question as well — what are you telling those businesses those households right now through this really trying time? And what's your advice on what the Fed is going to do at a high level, to try to support the US economy?

PATRICK HARKER: What I tell my neighbors. Like we're all outside taking walks a lot. I live in southern New Jersey right across from Philadelphia so I've gotten to meet my neighbors and talk to them a lot about this at a very personal level, including people who own small businesses. My best advice to them is, don't be shy to reach out to your financial institution, whether you're a household, or a small business or whoever you are, and I've been very impressed and talking with the bankers in my district. The community bankers — we’re primarily a community banking district, how eager they are to help to the extent they can with their customers.

And you know, we, in some cases some of our banks in this district went through Superstorm Sandy. And so they've done this before. They've done this now we're doing this on a national scale, but there are lessons that they learned through that, that they're now putting in place again to help the individuals and businesses in the district. So that's the message I try to give: that the Fed understands the challenges that the American people are facing. And we want to do everything within our legal authority to help.

JULIE HYMAN: President Harker thank you so much for your time. We really appreciate it. Patrick Harker is President of the Federal Reserve Bank of Philadelphia, be well sir.

PATRICK HARKER: Thanks, you too, be safe.

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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