“We were strong before we went into the health crisis, we will be strong when we come out of it,” said Dallas Fed President Robert Kaplan
2 Fed regional bank Presidents expressed confidence the US economy can rebound strongly after coronavirus restrictions on consumers and businesses are lifted.
“This is a public health crisis” and therefore very different from the typical recession, Raphael Bostic, President of the Atlanta Fed, said Friday in a TV interview. “The economy can rebound and some of the shortfalls people are talking about may not be as bad.”
Dallas Fed President Robert Kaplan, appearing on TV earlier, offered a upbeat view too.
“We were strong before we went into this, and we believe that we have got a great chance to come out of this very strong,” he said.
The Fed has slashed interest rates to almost Zero and pumped hundreds of billions of dollars into credit markets to ensure they continue to function and tide the economy over as it hunkers down from the virus. And they both said the Fed is still working on measures to help Main Street businesses the backbone of America’s economy.
Many pundits have predicted a historically sharp drop in economic activity in the US in Q-2 during a deliberately induced withdrawal from economic activity to protect public health.
St. Louis Fed President James Bullard has warned the jobless rate would rise to around 30% and GDP output would halve in Q-2.
The Dallas Fed expects a Q-2 drop in GDP, on an annualized basis, to be “in the 20s.” Mr. Kaplan predicted unemployment would peak “in the low to mid teens” before recovering to around 7%-to-8% by year’s end.
“We will have an elevated level of unemployment when we come out of this, to be sure,” he said, which the country would have to spend Y 2021 working down.
Mr. Kaplan said uncertainties revolve around how many small businesses can survive the virus frame, and how fast consumers get back to spending.
“We are going to have to learn what consumer behavior is on the other side of this,” he said. “Consumers are liable to be more cautious, may well save more – you could understand why – and their spending habits may be a bit different than they were, and we will have a higher unemployment rate.”
Mr. Bostic emphasized how difficult it is to predict how the economy will react over the coming months. He said his own staff cannot agree on whether the recovery is likely to begin in Q-3, or perhaps not until Q-4.
“With the recovery, there is a debate when that will happen,” he said. “A lot of the trajectory will depend on how we deal with the public health issue.”
Neither Messrs Kaplan or Bostic said they were troubled by the Fed’s unprecedented efforts to provide liquidity into financial markets or lend directly to companies through a a number of emergency facilities.
A $2.2-T virus aid/stimulus package passed by the Senate late Wednesday, backed by the House of Representatives Friday, and signed into law by President Trump later Friday would allocate an additional $454-B to support Fed programs. The Fed can use that as a backstop against losses, enabling it to make perhaps as much as $4.5-T in additional loans.
“It does not bother me, it is an emergency,” Mr. Bostic said. “One of the lessons coming out of the Great Recession was act strong. I have every confidence we are going to apply them in a very responsible way.”
They could not give a timetable on when the Fed’s Main Street lending program would be up and running. Both said the plan would involve small companies going to their bank to access Fed backed lending to help them survive the crisis.
“We are working furiously here at the Fed to have the teams in place and work out the details and get those programs ready, and you can have confidence that we will do that,” Mr. Kaplan said.
Have a healthy weekend, stay home!