Minneapolis Federal Reserve President predicts rocky road to recovery due to pandemic
BISMARCK — Minneapolis Federal Reserve President Neel Kashkari predicted a long road to economic recovery due to the coronavirus pandemic during a special business briefing call Thursday, May 7, hosted by The Greater North Dakota Chamber.
Kashkari, who presides over the Federal Reserve’s 9th District made up of Minnesota, Montana, North and South Dakota, northwestern Wisconsin, and the upper peninsula of Michigan, said across the nation, despite social distancing, people are still contracting the coronavirus and a lot of people are still dying.
“That tells me this is likely going to be a longer ordeal, not just a short shutdown and a very quick recovery.”
He also said he’s aware we can’t shut down the economy for 18 months to two years waiting for a vaccine.
“My best guess is we’re going to need to have very targeted reopening of the economy,” Kashkari said. “Not so much on a geographic basis, but on a business by business basis.”
He also called for massive widespread testing and contact tracing, and cautioned against herd immunity.
“You would end up with a lot of people probably losing their (lives), and probably needlessly,” he said.
One good thing, he said, is that younger, healthier people seem to be at far less risk.
“You could also imagine a scenario where certain businesses start to reopen leading with the younger workforce,” he said.
Sixty percent of North Dakota businesses reported April revenues down at least 25% from 2019, according to a survey across the 9th District, Kashkari said, and they expect May revenues will be even lower. Approximately 40% of businesses said they’ve cut staffing, compared to 2019 levels, and 35% expected more cuts in May. Most firms reported being able to hold their wages for now, he said.
There was some cause for optimism, Kashkari said.
“Only 14% (of respondents) said that they only had a couple of months or so of cushion,” he said. “The majority of firms said that they have more than a couple of months of cushion.”
It’s uncertain, however, how long it will take to return to “full economic activity,” he said, although it seems like it will take longer than a “couple months.”
With the price of oil getting “hammered,” the low demand for energy, and the agricultural industry under added pressure with low commodity prices, he said North Dakota has some challenges to face.
“I think North Dakota businesses were probably pretty well positioned, as well as anybody, going into this,” he said.
New official unemployment numbers are expected May 8, he said, and they’ll likely be 16% to 17%, but Kashkari said they’re actually more likely to be 23% to 24%.
“Which is just shocking,” he said. “The reason there’s a difference is because, to be counted as unemployed, you have to answer a survey that you’re actively looking for work. But, so many people have been laid off, and now we’re sheltering in place, many people are not actively looking for work because we’ve told them, ‘Stay home.’”
While the short term outlook looks bleak, and the medium term uncertain, he said, he still is “bullish” about the long term prospects for America, which he said has a "resilient" economy.
“We will get through this,” Kashkari said. ”It may be a rocky journey until we get to that recovery.”