Another stimulus bill is likely needed to revive the economy, Dallas Fed president says

Another stimulus bill is likely needed to revive the economy, Dallas Fed president says
Dallas Federal Reserve Bank President, Robert Kaplan, stands on a stage at Stanford UniversityÕs Hoover Institution where he is attending an annual monetary policy conference in Stanford, California, U.S., May 4, 2018.Ann Saphir/Reuters
  • More stimulus from Congress is likely needed if the economy is to recover from its current slump, Robert Kaplan, president of the Federal Reserve Bank of Dallas, said Wednesday.
  • Targeting state and local governments with aid will be key to ensuring a smooth rebound, he added in an interview on CNBC's "Squawk Box."
  • Stimulus can fuel only so much of a recovery, he added, noting that sufficient testing and contact tracing play critical roles in lifting consumer demand.

Additional fiscal stimulus, particularly aid for state and local governments, is needed for the economy to survive the coronavirus recession, Robert Kaplan, president of the Federal Reserve Bank of Dallas, said Wednesday.

Trillions of dollars in economic aid have flowed from congressional action and Fed policy, but officials have since stepped up their calls for further easing. Central bank chair Jerome Powell reiterated on Tuesday the Fed is open to issuing more relief beyond its nine lending programs.

One such facility specifically targets state and local governments and their budgetary needs. Economists fear nationwide shutdowns will drive widespread municipal deficits and hamper an early recovery. The Fed can funnel more loans through its programs, but further congressional spending could be just as helpful, Kaplan said.

"My guess is we are going to need to do more, but my guess is also you're going to need to do more fiscal action, whether it's aid to governments or other fiscal action as we go through this," he said in an interview on CNBC's "Squawk Box."

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Calls for more fiscal relief have formed fresh partisan tensions on Capitol Hill. Democrats unveiled a new $3 trillion stimulus package on Friday, but Republican legislators have dismissed the bill and instead backed state reopenings as the cure for the current slump.

Not all economic blights can be solved with stimulus, Kaplan added. Consumer spending accounts for the majority of economic activity, but a lack of testing and lingering fears of infection risk slowing a rebound in demand.

Kaplan indicated that the central bank is closely monitoring the outbreak's spread, and projected that an economic recovery likely relies on lifting consumer confidence.

"Until they feel more comfortable they're not going to fully engage in previous activities, and that you can't legislate, you can't stimulate with money. That's behavioral," the Dallas Fed chief said, adding that sufficient testing, tracing, and practices are increasingly important to the nation's economic backdrop.

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