Lockdown may be necessary to save economy: Fed's Kashkari

Minneapolis Federal Reserve Bank President Neel Kashkari is proposing another coronavirus lockdown in a bid to save the U.S. economy. Yahoo Finance's Brian Chung joins Zack Guzman to discuss.

Video Transcript

ZACK GUZMAN: When we think about how the economy, though, has been coming on a little bit weaker in the last few weeks, we think about this recovery. Of course, we're going to get the jobs update later on in the week. When we think about what the Fed's thinking is we've got an interesting tweet to report here from the president. The Minneapolis Fed highlighting that it might be necessary to lock down for the next few weeks for the sake of the economy as schools potentially here reopen.

And for more on that thinking, I want to get to Yahoo Finance's Fed reporter Brian Cheung, who has that and more. And Brian, kind of a serious warning here from the Fed.

BRIAN CHEUNG: Well Zack, this is the first time that we've heard from a Fed official a recommendation for re-closing down the economy. That coming from Minneapolis Fed president Neel Kashkari. He tweeted earlier this morning referencing a Wall Street Journal article about how to reopen schools.

He said, quote, "Do a hard lockdown now for six weeks to get the virus under control. Then open schools in late September. I haven't heard any other strategy to reopen safely that sounds remotely plausible given rampant spread in many areas." End quote.

This is echoing what the Minneapolis Fed president and Federal Open Market Committee voting member Neel Kashkari said on CBS's "Face the Nation" yesterday. Where he said he wanted to get the case count down, do contact tracing, and then avoid flare ups and local lockdowns for the next year or two. And he says that maybe just shutting down across the country for about four to six weeks could be the answer to doing that.

Now there have been a number of other Fed officials that have spoken since that point in time that have said, well, hey, maybe a full shutdown isn't necessary. You had this morning Dallas Fed president Robert Kaplan, also an FOMC voter, saying that the virus can be managed without another shutdown. The key, everyone to wear masks.

So this is a concern still as we do see the coronavirus cases remaining quite high in the United States. Keep in mind, over 47,000 new cases reported just yesterday. So a lot of diverging views on the FOMC about what the public health response should be. Should there be another whole economic shutdown? Or can be economic reopenings continue in parts of the country if people are following certain measures?

It seems like Chairman Powell, the head of the Federal Reserve, does lean towards the side of we can reopen parts of the economy. He said in the FOMC press conference last week that if everyone wears masks and does social distancing, the US economy could be set up for recovery. Zack.

ZACK GUZMAN: I mean, when you think about that update in terms of wearing masks, that wouldn't be the first time that we've heard that. We've heard the same kind of line of thinking from Goldman Sachs, noting directly the impact on GDP here, and wearing masks in the economic recovery. I mean, he's not alone to point some of those out.

But as you say, Neel Kashkari coming out and actually giving some advice in terms of the reopening front, that would seem to be different. Especially different from kind of the take that Jerome Powell is taking, and really kind of putting more of the pressure here on Congress to get something done as well.

BRIAN CHEUNG: The other thing too is that, when it comes to the Federal Reserve, we need to keep in mind that they don't have any power to enforce any of these recommendations. They are not the CDC. They are not the FDA. They don't have purview over these types of things.

And we actually heard for the most part at the beginning of this COVID-19 crisis, the Federal Reserve officials tried to say, you know what? We don't really want to opine too much on the epidemiological consequences of all of this. But what we're finding out now that we find ourselves in a prolonged crisis that has taken much longer than economists and other policymakers in DC originally had hoped for, is that this is indeed something where the economic implications, the political implications are tied directly to the epidemiological implications of all of this.

Which means that there is a direct economic correlation between people wearing masks, for example, doing social distancing, and the number that you see on the GDP print. So I think this is a bit of a shift for Fed policymakers, and maybe something we should continue to hear from as we do get into this crisis and try to flatten that curve continually.