Extension of jobless benefits to buoy growth, Fed’s Kaplan says

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A continuation of some form of extra unemployment benefits would bolster economic growth, Federal Reserve Bank of Dallas President Robert Kaplan said.

The extra $600 per week of jobless aid passed by Congress in March amid the start of the coronavirus pandemic ran out at the end of July. Lawmakers debating the next round of stimulus are at a stalemate over whether, and in what form, to extend the benefits.

“I think you’re still going to need to see an extension of unemployment. It may be restructured to some extent from the $600 but I think it’s important that we see an extension of it,” Kaplan said in on Bloomberg Television Monday. “The increased incomes, while it may have made it harder for certain individual businesses to hire, it’s helped create jobs because it’s helped bolster consumer spending, so the net effect still has probably been positive for the economy and for employment.”

Federal Reserve Bank of Dallas President Robert Kaplan
Federal Reserve Bank of Dallas President Robert Kaplan

If unemployment insurance isn’t boosted further, it could weaken growth, Kaplan said. He sees the economy contracting 4.5% to 5% this year, but rebounding strongly in the third and fourth quarters. U.S. gross domestic product shrank 32.9% on an annualized basis in the second quarter, a report showed last week.

Kaplan said he doesn’t think the U.S. needs another nationwide lockdown to tame the recent virus resurgence, as one of his colleagues called for on Sunday.

“We’re going to have to learn to live with this virus,” Kaplan said, adding that mask wearing, along with a good contact tracing and testing regime, is essential.

Although low take-up in some of the Fed’s emergency lending programs, such as the corporate credit and the municipal facilities, isn’t a barometer of their success, the programs directly aimed at businesses should be utilized, Kaplan said.

“The Main Street Program, and if there’s another round of the PPP, those programs are critical to helping those small- to mid-sized companies get credit, so I do think usage is important to look at there,” Kaplan said.

The Fed has revised its Main Street Lending Program several times, decreasing the minimum loan size to make it accessible to more businesses, and most recently proposing an expansion to nonprofit entities. Despite these tweaks, the program has only bought $82 million of loans so far.

Kaplan said he doesn’t favor changing forward guidance to specifically tie future rate increases to inflation running above 2%, something some economists have argued the Fed may be able to do without seeing inordinate price increases.

Kaplan said he prefers to keep tying forward guidance to both inflation and unemployment, as the Fed currently does. But he added that the central bank has learned that it can let the economy run a bit hotter than previously thought without sparking unwanted price pressures, and that by doing so, it pulls marginalized workers back into the labor force.

Bloomberg News
Monetary policy Robert Kaplan Federal Reserve Bank of Dallas Federal Reserve FOMC Coronavirus
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