NEW YORK (MaceNews) – After its record drop in the second quarter, the US economy is likely to see a record rebound in the third quarter, St. Louis Federal Reserve President James Bullard said Tuesday.
Bullard, answering questions during a webcast, said a record rebound in the third quarter is likely, a “big plus number,” along the lines of China’s experience after its economy rebounded from the virus effects. Bullard’s forecast appeared premised on an expectation that the US economy will be in a phased reopening in the second half, supported by testing and other mitigation efforts.
The shutdown policy to limit the spread of Covid-19 has a “limited shelf life of 90- to 120 days,” Bullard said. The US needs to switch to a policy of risk mitigation, as it does with other more routine risks, rather than maintaining costly shutdowns, he said. Keeping shutdowns in place risks economic depression, with too many business failures, and lasting damage.
Separately, in response to another question, Bullard dismissed a suggestion that the Fed will opt for negative interest rates. Negative rates is “not a good solution” in the US, given the way US money markets are structured, and the “track record of negative rates has been mixed” in countries where central banks have implemented them, he said. “A more explicit QE program is more likely,” if it is needed, Bullard said. Later, he declined to say how much larger the Fed’s balance sheet will get as it continues its asset purchase program, as the central bank is still in the midst of addressing the economic crisis.
Bullard also rejected a questioner’s suggestion that the Fed would implement yield curve targeting. Yields are low, and likely to remain low as long as virus concerns continue, he said, adding, “whether we have yield curve control or not, it is basically the same now.”
Bullard said the Fed’s special lending facilities and other steps have been effective in restoring financial market functioning. In some instances, markets reacted positively to the Fed’s announcement of these facilities ahead of their implementation, he said.