Skyrocketing savings rate means Congress can pass economic stimulus for cheap, Fed's Kashkari says
- A ballooning savings rate and muted inflation expectations should drive Congress to spend more on economic stimulus, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said Sunday.
- The US personal savings rate leaped to 20% from roughly 8% during the pandemic. That stronger savings activity means the US can fund its own fiscal relief instead of borrowing abroad, Kashkari told CBS's "Face the Nation."
- "We will be able to pay off the debt" once the economy resumes growth and Americans tap their savings, he added.
- A full economic rebound is unlikely without the coronavirus' containment or a vaccine, Kashkari said. It may be necessary for the US to undertake a month-long lockdown to avoid a prolonged battle with the pandemic, he said.
Congress should enact more fiscal stimulus and lift hurting Americans while the savings rate remains elevated, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said Sunday.
The US personal savings rate swelled to 20% from 8% through the pandemic as Americans froze spending on restaurants, vacations, and other activities. Past downturns left the US looking abroad to finance stimulus measures, but the stronger savings activity suggests the country can now fund its own relief, Kashkari said.
"While historically we would worry about racking up too much debt, we're generating the savings ourselves. That means Congress has the resources to support those who are most hurting," he told CBS's "Face the Nation."
While increased saving can bolster fiscal spending in the near-term, Kashkari also sees muted inflation expectations as a booster for relief in the years to come. Fed Chairman Jerome Powell said Wednesday that the bank isn't "thinking about thinking about thinking about" raising interest rates until the economy recovers, and policymakers see near-zero rates lasting through 2022. Inflation projections "continue to drift lower," leaving legislators with another reason for spending more on relief measures, Kashkari said.
"Right now, the US can fund itself at very, very low rates. Congress should use this opportunity to support the American people and the American economy," the Fed president said, adding "we will be able to pay off the debt" after the economy resumes growth.
Still, Kashkari joined fellow Fed officials in predicting the economy can't fully rebound until the virus threat subsides. More than 100 vaccines are currently under development around the world as biotech and pharmaceutical companies race to create the first silver bullet in fighting the pandemic. Until an efficient treatment reaches the market, a nationwide lockdown may be the best option for curbing the virus' spread, the Fed president said.
"People will be frustrated by it. But if we were to lock down hard for a month or six weeks, we could get the case count down so that our testing and our contact tracing was actually good enough to control it the way it's happening in the Northeast right now," Kashkari said.
If the coronavirus continues to rage throughout the US and prompt small outbreaks over the next year, it's possible the country will face more bankruptcies and a much slower recovery, he added.