James Bullard, president of the St. Louis branch of the US Federal Reserve Bank, has a bleak assessment of how coronavirus will impact the US economy in the short-term.
In a Sunday interview with Bloomberg, Bullard predicted that the unemployment rate will reach 30% in the second quarter, and gross domestic product will fall by 50%.
US unemployment was at its worst during the peak of the Great Depression in 1933, when the jobless rate spiked to 24.5%. In the aftermath of the Great Recession, US unemployment peaked at 10.2% in October 2009, according to the Bureau of Labor Statistics.
As cities and entire states enact mandatory social distancing measures, many businesses in the US, especially in the restaurant and hospitality industry, have been forced to close. Many have already begun laying off staff or halting their paychecks. The Labor Department reported that 281,000 Americans filed for unemployment last week, a sharp increase of 70,000 from the prior week.
Forecasters have varied in their estimates of the US job market’s suffering as a result of the pandemic. The first concrete data for job losses in March, estimated to range from 500,000 to 5 million jobs lost, will be reported April 3.
In order to weather the economic storm, Bullard stressed that a strong fiscal response and backing from the federal government would be needed in the coming months.
“This is a planned, organized partial shutdown of the US economy in the second quarter,” Bullard said. “The overall goal is to keep everyone, households and businesses, whole” with government support. “It is a huge shock and we are trying to cope with it and keep it under control.”
Bullard stressed that “everything is on the table” for the Federal Reserve as far as additional lending programs. Over the past week, the Fed has pulled seemingly every tool in its arsenal in order to calm a volatile stock market, including slashing interest rates and vowing to purchase as much as $700 billion in Treasury and mortgage-backed securities in the coming months.