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 businesses."

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 long-lasting."

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


(END) Dow Jones Newswires

July 14, 2020 17:00 ET (21:00 GMT)

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