No Vaccine? Then Look for 18 Months of Shutdowns

Fed’s Kashkari warns of new flare-ups that could push economy back into an induced coma.

If there’s no effective vaccine or therapy for the coronavirus now ravaging the nation, the US should expect 18 months of rolling shutdowns amid periodic surges in new contagions, according to Federal Reserve Bank of Minneapolis President Neel Kashkari.

The path out of the US economy’s current government-ordered business closings, he told the NBC “Today” show on Tuesday, will be halting. “I don’t think we’re going to go back to how life was in January or February for the next 18 months.”

Rather, he said, “we’re going to have to slowly reopen things … and then very carefully see if we have flare-ups for the foreseeable future until we get an effective treatment or a vaccine.”

As the Fed studies other spots around the world where lockdowns have been eased, “the virus flares back up again,” said Kashkari, a rising star at the Fed and a 2020 member of its policymaking body, Sunday on CBS’s “Face the Nation.”

“We could have these waves of flare-ups, controls, flare-ups, and controls until we actually get a therapy or a vaccine. I think we should all be focusing on an 18-month strategy for our health care system and our economy.”

Right now, unemployment has surged across the US with 17 million people filing for jobless benefits over the past three weeks. That has prompted President Donald Trump and other politicians to eye when business activity could be restored.

A partial re-opening could happen in May, Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said Sunday on CNN’s “State of the Union.” Nevertheless, that risks having the coronavirus outbreak re-emerge again in autumn, he noted.

Some, such as the president, envision an abrupt snapback of economic growth once business restrictions are lifted. Others, such as Kashkari, are less optimistic about an immediate restoration of the booming economy that the virus shutdowns cut short. “It’s hard for me to see a V-shaped recovery under that scenario,” the Fed official said.

Kashkari knows firsthand about dealing with economic disasters. As an assistant Treasury secretary, he oversaw Troubled Asset Relief Program, a federal facility set up to bail out banks during the 2008-09 financial crisis. And he is no stranger to politics. A Republican, he ran and lost in a race to dislodge California’s then-Gov. Jerry Brown in 2014.

A longtime advocate of keeping interest rates low, Kashkari was a backer of the Fed’s slicing rates to near-zero in response to the economic dead stop. Unlike some who worry that this and the recently enacted $2.3 trillion in government stimulus spending risk future inflation, Kashkari has argued that inflationary pressures are and will remain small.

Fed Chairman Jerome Powell recently cautioned that the economic downturn was occurring at an “alarming speed” and that joblessness would temporarily reach extremely high levels.

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