Federal Reserve Vice Chair Richard Clarida Tuesday said recovery from the economic shutdown “can commence in the second half”, while St Louis Fed President James Bullard said he sees the fourth quarter as when the virus can be put “behind us”.
Both Fed policymakers stressed that there are many unknowns about the pandemic and that for now the effort to save lives is the prime objective.
“The unemployment rate is going to surge to numbers that, again, we’ve not seen probably since the 1940s,” Clarida told CNBC in an afternoon interview. “We know that from the initial claims data that around 30 million people have filed for claims in the last six weeks and so the unemployment numbers that we’ll be getting soon are really going to be very elevated.”
He continued, “There can be a rebound in the economy once businesses reopen and people return to work, but I think realistically it’s going to take some time for the labour market to fully recover from the shock,” something that’s “very uncertain at this point. But that I do think recovery can commence in the second half of the year.”
Bullard, whose next stint as a Federal Open Market Committee voter is in 2022, said his main emphasis would be on employing a “risk-based” approach to reopening the economy in 90 to 120 days. The longer the lockdown continues, he said, the more chance there is of additional problems that could extend into the financial system. He answered questions at a videoconference hosted by the National Association for Business Economics.
The upward momentum for US stocks largely dissipated while Clarida was speaking, although other factors may have also been in play. The Dow industrials still ended higher by 133 points, a 0.6% gain for the session, but that was about 160 points lower than when the interview began.
The point at which stocks began to sag was when Clarida reminded that the massive lending programs the Fed is doing with money Congress gave the Treasury Department as a backstop for loans, is only temporary and has a set time limit.
The Fed’s programs are scheduled “to expire September 30th of this year in terms of new lending”, Clarida said. “This is emergency authority” and “will be scaled back after the appropriate time when we’re through this difficult period”.
Bullard said history shows that the economic after-effects of pandemics, such as in the 1950s and 1968, do not linger. Even one with millions of fatalities in 1918 was followed “by the Roaring Twenties”.
“So I think…from an economic point of view, it’s not clear that pandemics are really a killer for the economy,” he said.
Bullard said adjustments have been made to meet the threat of terrorism and to mitigate automobile accidents and he thinks the same will happen as the nation builds ways to control the extent of the coronavirus.
“I’m very hopeful that we’ll get a vaccine,” Bullard said. “I think that would be a great outcome. But that isn’t how we should think about it because that’s sort of saying that you’re going to keep the economy on hold until a miracle occurs.”
Bullard saw the third quarter as being one of “transition” in which “you’re kind of experimenting with opening up and I think we’re actually seeing some of it right now.”
Yet, “I wouldn’t expect too much out of the third quarter” and by the fourth quarter “I would hope that you could have an end of the crisis and put this behind us.”
To do that, there will have to be “confidence in businesses and for workers and for consumers that they can do ordinary things and they’re not going to get sick”. Without a vaccine only a robust program of testing or at least temperature screening will be necessary by then, he said.