The U.S. unemployment rate could soar to 30% over the next three months as businesses shut down during the coronavirus pandemic and GDP could fall 50%, according to Federal Reserve Bank of St. Louis President James Bullard.
“This is a planned, organized partial shutdown of the U.S. economy in the second quarter,” Bullard told Bloomberg’s Steve Matthews in an interview on Sunday. “The overall goal is to keep everyone, households and businesses, whole” with government support until the crisis passes, he said.
“It is a huge shock and we are trying to cope with it and keep it under control,” Bullard said.
The Federal Reserve announced on Monday that it will buy unlimited amounts of Treasuries and agency mortgages, including multifamily, to grease the wheels of the credit markets. The Fed also said it would set up programs to ensure credit flows to corporations and state and local governments. That includes buying municipal debt, which will provide cash to the communities who are on the front lines of the COVID-19 pandemic.
“Everything is on the table” as the Fed considers how it will support the economy, Bullard said. “There is more that we can do if necessary” with existing emergency authority, he said.
And, Congress may decide to broaden the Fed’s authority, which is outlined in the Federal Reserve Act of 1913, he said.
“There is probably much more in the months ahead depending on where Congress wants to go,” Bullard said.
About a quarter of the U.S. workforce is employed in industries hard-hit by stay-at-home orders aimed at stemming the spread of the coronavirus that causes COVID-19. About 14% of Americans work in hospitality and other services, and about 11% work in retail, according to the Bureau of Labor Statistics.
Normally, unemployment insurance only partially replaces lost wages. In response to the COVID-19 crisis, the policy should be changed temporarily to cover 100% of the prior salaries, Bullard said.
Bullard called it “pandemic insurance” since the disruption is intended to block the spread of the coronavirus.
If there’s an aggressive government response, the economy could rebound quickly from the COVID-19 disruptions, he said.
“I would see the third quarter as a transitional quarter” with the fourth quarter and 2021’s first quarter as “quite robust” because of pent-up demand, Bullard said.
“Those quarters might be boom quarters,” Bullard said.