St. Louis Fed President James Bullard warned Wednesday that the impact of the novel coronavirus on the U.S. economy would be of historic proportion, but said the Federal Reserve still has some tricks up its sleeve.
“The numbers for the second quarter will be unparalleled compared to U.S. macroeconomic history,” Bullard told reporters. “I don't think that has to be discouraging because these numbers are not comparable to anything that has occurred in the U.S. economy that we’ve recorded.”
Bullard added that he expects the “extraordinary” figures on GDP and unemployment to be “relatively brief.”
Based on St. Louis Fed research, Bullard projects the U.S. unemployment rate spiking up to 30%. The figure is based on the underlying assumption that about half of total employment is at “high risk” of layoff as businesses across the country shut down.
In the meantime, Bullard said the Federal Reserve can still lean on other monetary policy tools to keep the U.S. economy going.
“Everything's on the table, so we could do more,” Bullard said.
‘There’s nothing wrong with the car itself’
In a blog post Monday, Bullard argued that policymakers need to think about the economic disruptions as a deliberate “throttling down” of the U.S. economy. His argument: A controlled and partial shutdown of the economy is necessary to avoid a catastrophic health outcome where the virus is not contained.
Bullard’s estimate of an adequate shutdown to be one where 50% of real GDP is shut off for the purposes of public health, with the “temporary” virus fading away and allowing for a period of “transition” in the third quarter.
Bullard compared the U.S. economy to a car traveling down a highway at 70 miles per hour and needing to slow down through a construction zone.
“Once you come out on the other side, they give the all clear and you can speed up again,” said Bullard, adding later that “there's nothing wrong with the car itself.”
Bullard said he is still watching for the details on a fiscal response on Capitol Hill, where lawmakers reached a deal early on Wednesday. The Fed has signaled its desire to open up a “Main Street Business Lending Program,” which Bullard said is directly related to the bill.
“The legislation is what would be enabling that,” Bullard said Wednesday.
Bullard also said the bill will have implications for the market liquidity problems that the Fed has tried to tackle through its temporary facilities. Bullard said he hopes municipal debt markets will see less pressure as a result of the household and business relief proposed in the bill.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.