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Fed's Kashkari: Delta variant may slow labor market recovery

The Fed’s Kashkari warns that the delta variant could slow jobs recovery. Yahoo Finance's Brian Cheung shares the details.

Video transcript

- Well, you heard that warning there from the WHO about the concerns around the Delta variant. Minneapolis Fed president Neel Kashkari offering his own warning yesterday in an interview with CBS's "Face the Nation," saying the Delta variant could slow recovery in the US labor market. Let's bring in Yahoo Finance's Brian Cheung, who's following that part of the story for us today. Brian.

BRIAN CHEUNG: Well, Akiko, ahead of that July jobs report that we're expected to get on Friday, a lot of questions about whether or not we're reaching a tipping point, where the labor market could really hinge on where the uncertainty goes over the next few months. And that's because of the Delta variant that, from a health standpoint, Anjalee just outlaid a few seconds ago. Now, of course, the question for the Federal Reserve is what does that mean for the labor market recovery, where there are still over 6 million people, as at the end of June, sidelined compared to pre-pandemic levels.

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And as you mentioned, Minneapolis Fed president Neel Kashkari offering his take, saying over the weekend on CBS's "Face the Nation," quote, "the last recovery took 10 years to put everybody back to work. We cannot have another 10-year recovery. I'm optimistic it can happen more quickly, but is it six months or is it two years? I'm not sure."

And this echoes the commentary that we heard from another dove on the Federal Reserve committee-- that's Fed governor Lael Brainard-- over the weekend, who on Friday night similarly said she expects the labor market to return to pre-pandemic form in time, but said, quote, "it's just a question of what's the pace at which that's going to take place." And a big reason for that uncertainty and maybe humbleness about the outlook for where the labor market goes has to do with that Delta variant that could slow the ability of people who might be nervous about contracting the virus in getting back to work.

Now of course, guys, this all hinges on the Federal Reserve's policy when it comes to its balance sheet. Obviously, the Federal Reserve, in view from a market standpoint, over their tapering process, the $120 billion a month pace of asset purchases-- that's US treasuries and also agency mortgage-backed securities-- that tilted the Fed balance sheet up above $8 trillion, the Fed saying in its last meeting last Wednesday that it could slow those purchases in coming meetings. That was also the guidance that the Fed governor Lael Brainard had provided over the weekend, which means that it's all about the labor market recovery. It kind of fits in the timeline that, if the Fed were to begin tapering maybe at the beginning of next year or the later part of this year, they hope to have the labor market in a much better place than it is right now. But again, with that Delta variant, who knows what that might look like in a few months, guys.

- Brian, you mentioned Lael Brainard's names a few times-- a few times there, and some people are digging into what she mentioned during that talk in front of the Aspen Economic Strategy Group. You talk about her positioning here, and of course, President Biden has-- you know, hasn't weighed in on what's going to happen with Jerome Powell at the head of the Fed here. And people are looking at her as a potential option when he does officially either go, you know, thumbs up or thumbs down on Jay Powell. I mean, what do you make of how she might be positioning herself as a foil here in regards to what progressive Democrats have been pushing for, with higher regulations on banks and the financial sector at large?

BRIAN CHEUNG: An excellent point that you make there. And we have to understand the timeline here. So Jerome Powell's term as Fed Chair ends in February of next year. That means that the Biden administration would like to get ahead of the ball here by starting to think, at least right now, about a possible replacement for him, or if they would like to renominate him. Now, no word yet from the White House over what their official stance is, but Lael Brainard is rumored to be one of the candidates if they do decide they want to go in a different direction and replace Powell at the top of the Fed. Brainard would be someone who is already inside the Fed. Because of that reason, hopefully should get easy nomination through the Senate.

But the attractiveness of her candidacy is that she's a bit more progressive on the regulatory side of things, on the way that the Federal Reserve approaches bank regulation, because aside from monetary policy, that's another big, major role that they play, as well. So Powell and the likes of Randy Quarles, who was a Trump nominee, have been kind of criticized by those on the more progressive left as being more friendly to the deregulatory aspects of bank regulation, Brainard on the other side of that debate. So it's kind of up in the air right now as to whether or not the White House will ultimately want to replace Powell, because by all standards, it seems like he did pretty well through the pandemic in keeping the economy up. But again, we'll have to see if there are any developments in the coming weeks.

- Brian Cheung bringing us the very latest developments on that front. Thanks so much for that.