Federal Reserve Bank of St. Louis President James Bullard prepared the public Sunday for the truly dire economic impact of the state-imposed mass shutdowns of entire industries in response to the COVID-19 pandemic. During a phone interview with the press, Bullard predicted a jaw-dropping rise in unemployment and an even more devastating decline in gross domestic product (GDP) over the course of quarter 2; however, he also sees a financial light at the end of the tunnel, predicting potential “boom quarters” in the fourth quarter of this year and the first of next year.
According to Bullard, the U.S. unemployment rate could reach as high as 30% in the second quarter as a result of the coronavirus shutdowns, while GDP could drop as much as 50%, Bloomberg reported Sunday.
“This is a planned, organized partial shutdown of the U.S. economy in the second quarter,” Bullard said during the phone interview Sunday. “The overall goal is to keep everyone, households and businesses, whole,” he explained. “It is a huge shock and we are trying to cope with it and keep it under control.”
The Fed has already taken some aggressive action. Bloomberg notes that last week the Fed “restarted financial crisis-era programs to help the commercial paper and money markets, after cutting interest rates to near zero and pledging to boost its holdings of Treasuries by at least $500 billion and of mortgage securities by at least $200 billion.”
But Bullard said the Fed is prepared to do more. The $2.5 trillion in lost income, Bullard said, requires an even stronger and more comprehensive fiscal response — a response, he suggested, that must be open to a wide range of measures and would depend upon “where Congress wants to go” in its emergency actions.
Buying corporate debt was one option that Bullard said the Fed could “certainly look at,” noting that the Fed is “already supporting very short term funding markets.”
In order to provide loans to small businesses — one of the priorities of the emergency economic relief package blocked by Democrats in the Senate Sunday — it would be better to turn to existing small business lending programs rather than taking the time to create a new program, Bullard said.
Though Bullard offered a sobering assessment of the nation’s economic situation in light of the shutdowns, he also offered some hope.
“I would see the third quarter as a transitional quarter,” Bullard said, as reported by Bloomberg. The fourth quarter and the first of next year, he suggested, were likely to be “quite robust.”
“Those quarters might be boom quarters,” said Bullard.
Bullard’s grim projections highlight the urgency for Congress to pass the emergency relief package blocked Senate Democrats thwarted, reportedly at the behest of House Speaker Nancy Pelosi (D-CA). In place of the bipartisan bill, House Democrats presented their own stimulus package Monday that contains a series of non-crisis-related Democratic “wishlist” items, including, as detailed by Republican Sen. Tom Cotton:
- Corporate pay statistics by race and race statistics for all corporate boards at companies receiving assistance.
- Bailing out all current debt of postal service
- Required early voting
- Required same day voter registration
- 10k bailout for student loans
- For companies accepting assistance, 1/3 of board members must be chosen by workers
- Provisions on official time for union collective bargaining
- Full offset of airline emissions by 2025
- Greenhouse gas statistics for individual flights
- Retirement plans for community newspaper employees
- $15 minimum wage at companies receiving assistance
- Permanent paid leave at companies receiving assistance