By Michael S. Derby 

Federal Reserve Bank of Chicago President Charles Evans said he's expecting substantial economic pain during the second quarter due to the coronavirus crisis and warned that because companies and households are expending savings and other resources to hold on, that could weigh down a hoped for recovery.

"It's important to remember that we entered this crisis with solid economic fundamentals. We have a good base to build on," Mr. Evans said on Wednesday in video remarks to a gathering of the Economic Club of Chicago. But he added "the economic downturn will be deep. There's no getting away from that," adding the longer the crisis goes on, the greater the risks to the outlook.

Mr. Evans said that whatever happens, the economy -- which he still hopes will be able to mount a quick recovery with Fed and government support -- will look different and likely weaker.

"Even under a best case scenario, the U.S. and global economy will be less prosperous coming out of this crisis than we were going into it," Mr. Evans said. "We are all using valuable resources and savings that we had intended to use for other aspirations" and to ensure that the trouble is not longer-lasting, "it seems likely that additional resources will be required to navigate through the next several months and beyond."

"The United States has already committed trillions of dollars in welcome federal fiscal packages in relief support to the public. But even more action would be valuable," the official said. He also noted more support to small businesses beyond current stimulus programs is probably necessary.

Mr. Evans was joined in his concern over the outlook by Federal Reserve of Richmond President Thomas Barkin, who weighed in via an essay published on the Richmond Fed website. He said the downturn will be "deep" and added "the duration is of course not fully knowable." But he added that the experience of China has some hopeful implications: "The good news is that one can have confidence people will be able to go back to work."

Mr. Evans, who is not currently a voting member of the rate-setting Federal Open Market Committee, said that the nature of the current crisis is so stark that he and other Fed officials are already willing to call the troubles what they are: a recession.

"Historically, people in the Fed wouldn't mention recession until it was absolutely officially determined," Mr. Evans said. But, "this is such a severe downturn, the unemployment rate is going to go up to double digits, it was just very clear that a lot of relief economic relief and stimulus was called for."

He does think more may be needed on the fiscal front, especially in terms of credit to small firms. And right now, the key thing is keeping people and companies afloat until the pandemic subsidies.

"If we can get as many business employment relationships held together into the second half of this year, and households able to make enough payments and find a way forward, then we can start seeing what does the future looks like, what is our growth path," Mr. Evans said.

In his speech, Mr. Evans appeared to largely view the central bank's job now as one of execution for its already launched efforts, which he sees as critical to bridge the crisis period, and he didn't say what else he'd like the Fed to do.

Write to Michael S. Derby at michael.derby@wsj.com

(END) Dow Jones Newswires

April 08, 2020 15:33 ET (19:33 GMT)

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