The former chair of the Federal Reserve on Monday predicted more job losses and economic fallout from the coronavirus crisis that could rival the devastation of the Great Depression, but said Americans should remain hopeful for a much swifter economic recovery, given the strength of the U.S. economy prior to the pandemic.
“Unemployment rates for a time may go to Depression levels. But this is very different than the Great Depression or the recession in the U.S. economy that we experienced in 2009 and after,” Janet Yellen, who chaired the Fed under President Barack Obama, said on CNBC.
“We started with an economy that was in good shape, with the financial sector that was basically sound, and this is a health crisis,” Yellin said. “It’s having severe economic effects, but if we’re successful in supporting people’s incomes during this time… I believe we will be able to get back to a normally functioning economy in much shorter order than during the Great Depression, after the Great Depression, or even the Great Recession.”
Last week, the Bureau of Labor Statistics announced that nearly 10 million Americans applied for unemployment benefits in the previous two weeks combined. Its jobs report for March reported the first decline in U.S. job growth after nearly a decade of gains, and an unemployment rate of 4.4%, up from a 50-year low of 3.5% in February.
The actual unemployment rate is much higher because the report does not include the job losses in the last half of March, when the pandemic forced most businesses across the country to close, putting millions of Americans out of work.
Economists expect the combined job losses in March and April to complete erase the 22.8 million in job growth over the last decade.
Yellen called the recent numbers “absolutely shocking.”
“Probably now, if we had a timely unemployment statistic, the unemployment rate would probably be up to 12% or 13% at this point, and moving higher,” she said Monday.
Other economic indicators and data point to “a dramatic decline in economic activity,” she added, predicting a decline in GDP of “at least 30%” in the second quarter, which ends on June 30.
“So this is a huge, unprecedented, devastating hit,” she said. “I think the total is continuing to rise, and how bad it gets, I think it really depends on how quickly people can get back to business. My own thinking is that our focus needs to be on testing and trying to get the pandemic under enough control so we can begin to restore business activity. But certainly, unemployment could go quite a lot higher.”
One sign that points to a potentially quick recovery, Yellen said, was that most people’s unemployment applications have been for “temporary job loss,” which indicates “workers are still connected to their firms, and if activity can restart, that they’ll be able to go back to their old jobs.”
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