Fed's Bullard Says Economy Can Rebound in Second Half of Year -- Update
By Michael S. Derby
Federal Reserve Bank of St. Louis President James Bullard said
Tuesday that as the economy adapts to the coronavirus pandemic, a
solid recovery and a substantial decline in what is now a very high
unemployment rate are both possible.
"The macroeconomic news for May and June, reported with a lag,
seems to suggest that April will prove to be the lowest point of
the crisis," Mr. Bullard said in a presentation for a meeting of
the Economic Club of New York. He added that forecasts for the
second quarter, which bore the brunt of the economic impact of the
pandemic, are now less negative, and the job market has improved
more quickly than expected.
Mr. Bullard said that if layoffs associated with the crisis end
and workers come back, the unemployment rate could drop very
swiftly from its current 11.1% mark.
"A back-of-the-envelope calculation suggests that there is room
for a substantial decline in the official unemployment rate in the
months ahead," Mr. Bullard said. "If all those unemployed
identifying as 'on temporary layoff' are simply recalled in the
next six months and nothing else changes, the official unemployment
rate would decline to a shocking 4.5%," Mr. Bullard said.
Mr. Bullard said this upbeat outlook can be achieved as the
economy builds on its experience dealing with the crisis. He said
"simple precautions" in the retail sector can allow that sector to
come back to life, for example.
Mr. Bullard appears confident that the economy can adjust,
saying adaptation and successful health-policy efforts "may bring
the disease under control in the second half of 2020." He also said
in his presentation that "the downside risk remains substantial and
better execution of a granular, risk-based health policy will be
critical to keep the economy out of depression."
Mr. Bullard's upbeat take on the economy's effort to navigate
the pandemic isn't widely held by other members of the central
bank. A number of central bank officials have said surging cases of
illness related to the pandemic are boosting their concern about
the outlook. A number of officials have said they see signs the
economy's rebound may be stalling as parts of the economy once
again close down to reduce the spread of disease.
Likewise, the prospect of a swift decline in the jobless rate
isn't the Fed's base case. Its most recent forecasts see the
jobless rate falling to 9.3% by the end of this year, and 6.5% by
the end of 2021. New research from the San Francisco Fed said
recently that the jobless rate could fall to 6% by the end of 2022,
well over the 3.5% mark seen in February of this year, before the
pandemic took hold in the U.S.
Fed governor Lael Brainard, who spoke separately Tuesday,
offered a more downbeat view relative to Mr. Bullard. Ms. Brainard
said, "uncertainty will remain elevated as long as the pandemic
hangs over the economy," adding "the recovery is likely to face
headwinds from diminished activity and costly adjustments in some
sectors, along with impaired incomes among many consumers and
Philadelphia Fed leader Patrick Harker, who spoke Tuesday, also
offered a downbeat view on where the economy is. "Even as the
economy is reopening in fits and starts, the pandemic's effects are
proving not to be just a brief setback," he said. "We are in a
downturn that is both exceptionally painful and stubbornly
Speaking with reporters after his video appearance, Mr. Bullard
said that as of now, he expects Fed policy to remain at its current
stance for some time to come, and he said the prospect of raising
rates hasn't even entered his mind.
Write to Michael S. Derby at firstname.lastname@example.org
(END) Dow Jones Newswires
July 14, 2020 17:00 ET (21:00 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.