As millions lose jobs, Fed policymakers say recession is here
The U.S. recession is here. How long it will last will depend on the course of a viral pandemic that could still kill hundreds of thousands of Americans, and has most of the country under lockdowns aimed at slowing the infection’s spread.
But how quickly the world’s biggest economy will recover will depend on how much aid the government gives it, and how effectively it can be used to stem what are already millions of job losses, Fed officials said on Thursday.
“One thing we know from 2008, when you had millions and millions and millions of Americans losing their jobs, it took more than a decade to put the labor market back together,” Minneapolis Federal Reserve Bank President Neel Kashkari said in a webcast townhall event. “I’m really pleased that a lot of the action by the federal government and the state governments has been focused on trying to keep workers in their jobs.”
Kashkari was referring to the brand-new $350 billion Paycheck Protection Program, due to be rolled out on Friday to provide small businesses with grants to keep their workers on the payroll.
The program is a key part of the $2.2 trillion coronavirus rescue package passed by Congress last week.
In the past two weeks 10 million Americans have newly filed for unemployment insurance, a figure Kashkari called “shocking and disturbing.” His wife, who worked at a corporate travel management company, is among the legions of newly jobless Americans, he said.
If employees remain attached to their former jobs, he said, the recovery may be faster because companies will be able to restart much more quickly.
If businesses cannot reopen and cannot keep their employees on the payroll, “you would see waves of thousands of business going through bankruptcies (and) that is what would lead to a long, much more shallow recovery.”
Speaking earlier in the day to CNBC, Dallas Fed President Robert Kaplan agreed the economy is already in a “severe contraction” and forecast that unemployment could rise to the low or mid teens.
A 15% unemployment rate would mean 24 million Americans out of work. The rate was 3.5% in February, and peaked at 10% during the Great Recession
“We know that because of these shutdowns, the service sector is going to come out more challenged, and the consumer is going to come out more challenged,” Kaplan said, referring to mandates in most states that force non-essential businesses to close and require people to stay home as much as possible.
While he expects the unemployment rate to drop to around 8% by year’s end, Kaplan said, “it will take us a while to work that off.”
Rescue efforts for the economy, including the $2.2 trillion package passed last week, are essential, he said. But “there’s going to have to be more fiscal action,” Kaplan said.