- Unemployment in the US could rocket to 30% next quarter as coronavirus rages, and gross domestic product could plunge 50%, a senior Fed official told Bloomberg on Sunday.
- “It is a huge shock and we are trying to cope with it and keep it under control,” said James Bullard, president of the St. Louis Fed.
- Bullard called for a ramp up in government spending to offset an estimated $2.5 trillion in lost income next quarter.
- He added that the Fed is ready to lend more and ramp up Treasury purchases to shore up markets against the pandemic’s economic fallout.
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US unemployment could surge nearly 10-fold to 30% next quarter and gross domestic product could plummet 50% as the novel coronavirus shuts down a big chunk of the economy, a senior Federal Reserve official told Bloomberg on Sunday.
“This is a planned, organized, partial shutdown of the US economy in the second quarter,” James Bullard, president of the St. Louis Fed, said in the phone interview. “It is a huge shock and we are trying to cope with it and keep it under control.”
Bullard called for a big boost in government spending to offset an estimated $2.5 trillion in lost income next quarter and underpin a national recovery. He also ridiculed the idea of allowing key economic sectors to collapse.
“It is totally stupid to lose a major industry because of a virus,” he told Bloomberg. “Why would you want to do that?”
The Fed, which has already cut interest rates to near zero and restarted emergency programs, is ready to use its tools to shore up the US economy, Bullard continued. “Everything is on the table” in terms of further lending, he said.
The central bank is also willing to spend far more on Treasury bonds than the $500 billion it recently authorized, Bullard told Bloomberg. “We are trying to provide as much support as we can to that market.”
Bullard predicted the US economy would recover some momentum in the third quarter, and a strong rally could lead to two “boom quarters” over the following six months.
The Fed official’s forecasts are bleaker than even those of Goldman Sachs, which expects a 24% US GDP decline in the second quarter. Goldman’s economists also estimate that more than 2.2 million Americans filed for unemployment benefits last week, more than triple the previous weekly record.