After short-term ‘unparalleled’ shock, economy will boom

[ad_1]

The U.S. economy is facing a huge shock to the system over the near term, then will bounce back strongly, St. Louis Federal Reserve President James Bullard told CNBC on Wednesday.

Earlier this week, the central bank official forecast that the unemployment rate will skyrocket to 30%, higher than it was even during the Great Depression. However, he tempered those remarks in Wednesday’s interview on “Squawk Box,” saying that while the near-term damage will be daunting, it’s largely an intentional hit due to efforts to combat the coronavirus and will be unwound quickly.

“This number will be unparalleled, but don’t get discouraged,” Bullard said. “This is a special quarter, and once the virus goes away and if we play our cards right and keep everything intact, then everyone will go back to work and everything will be fine.”

Once the short-term hit passes, Bullard said, the U.S. economy then could see a “boom quarter where there’s a lot of production at that point” thanks to “pent-up demand” resulting from the period of low activity.

On the stimulus package making its way through Congress, Bullard said the $2 trillion or so figure is about right, considering the impact the move to shut down much of American commerce will have on production. State governments increasingly are ordering residents to stay inside as the virus runs its course, a move that hits at the heart of the consumer-driven U.S. economy.

Bullard and his colleagues have taken extraordinary steps during the crisis, pulling short-term borrowing rates to near zero, implementing a slew of programs aimed at keeping markets functional, and directing funding to businesses and institutions in need.

He said the unemployment rate indeed will spike, but then should settle back to its trend, which had been around a 50-year low.

“You’d have this huge spike mostly centered in the second quarter, but everyone knows exactly what that is, that’s pandemic relief that’s done on purpose,” he said. “If we can get this to work right, everything will snap back to normal once this is over.”

[ad_2]

Source link