Chicago Fed President Evans counsels patience and teamwork as we finesse a likely 20% - 40% U.S. GDP drop

Charles Evans, President of the Federal Reserve Bank of Chicago, held a chatty, telephonic presser with twenty or more business journalists this morning for an hour at 9 am (CST). The over-riding theme? The Treasury and the Fed are in lock-step on handling the Covid19 crisis (There was no mention of President Trump, presumptive 2020 Democratic Presidential nominee Joe Biden or specific state governors). His emphasis? If the country stays together, believes in and acts on "Shared sacrifice," we will get through this, although there is plenty of uncertainty as to the exact path to take and outcome that will result.

Two things we all know: 1st quarter U. S. GDP declined at 4.8 % and 2nd Quarter consensus forecast is a 20% to 40% GDP decline.

President and CEO Evans clearly is working to formulate policy with his Fed colleagues on the 19 member Open Market Committee, led by Chairman Powell, with that depression era consensus forecast hanging over them. That's perhaps why Congress, Treasury, the Federal Reserve & Trump seem non-plussed by their three trillion dollar "Economic Relief," federal program.

The 3rd and 4th quarters are shrouded in mystery. If you are a business economist, you place your bet, and we'll see who gets it right.

What's President Charlie Evans predict? He didn't quite say. But, Charlie seems to think we are a bit more likely to have growth in the 2nd half of this year than not, but it doesn't sound like he would bet the ranch on that.

He did however emphasize that the Fed is not set up to take financial losses. Especially it's $600 billion Main Street lending facility. It's not giving out grants on this one, but making loans, with little if any "Forgiveness." That facility is intended to assist borrowers who are Not-For-Profit, small and large companies and universities that are illiquid, not insolvent.

President Evans emphasized the Fed works closely with the Treasury, who can cushion losses for Fed run credit facilities. That's part of Treasury Secretary Mnuchin's job.

Asked about the massive and growing national debt, Evans indicated this is not the time to focus on that issue.

Instead, he thought the federal government team (including the Federal Reserve on this one) realizes that with 10 yr treasuries at 61 basis points, now is the time for needed social investment whose social benefits far exceed the borrowing costs.

Evans was asked by this reporter about the contrarian view of a COVID19 solution coming from former Stanford chief neuroradiologist Scott Atlas, WSJ, Wirepoints and others that Fed and other policy makers should put greater emphasis on avoiding the human toll of another depression by opening up the U.S. Economy sooner rather than later and sending kids back to school and non-at risk employees back to work.

Evans replied that he was aware of the herd immunity argument, but didn't touch on the notion of self-isolating the high risk- elderly and/or those with underlying conditions, as opposed to essentially quarantining most of America by having 330 million people Stay at Home.

Nor did President Evans comment on concentrating our resources on protecting the most vulnerable and taking advantage of the fact that almost anybody can get infected but, other than those most vulnerable, not seriously ill from COVID.  Evans emphasized in his response "We put a high value on human life."

The economic data driven President Evans discussed U.S. unemployment perhaps reaching levels like 20% or higher soon (if not already) and what unemployment might look like in January 2021.

If the U.S. unemployment rate falls back to 5% by the end of 2020, higher than our 3.5 historic low of earlier this year, well then- Evans said we would seem poised for a strong 2021- which President Trump has predicted will be a "Great year."

Alternatively, if unemployment is at 9% in early 2021, then, unless fiscal and monetary policy can offset that in short order, President Evans suggested we are probably headed for the sluggish, slowish economic recovery of 2011-2014.

President Evans, who has no Fed OMC vote this year, but a strong voice on the Open Market Committee, is not worried about inflation (notwithstanding the extremely high, recent rates of growth of the money stock). He said, "Prior to COVID19, we could never even reach our targeted inflation rate of 2%." Nor did the Chicago Fed President seem worried that interest rates might hover around zero per cent for a long time.

No, the 12 year Chicago Fed President is counseling patience, commitment and generally staying the course in terms of our current fiscal, monetary and other governmental efforts to survive this once in a life time, health issue of COVID19.  He says there is a lot we will have to try, see how it works and adapt, as needed.

President Evans has no silver bullets nor unclouded crystal balls, but his is a steady, firm hand on the Chicago Fed's tiller, while many others might panic during the pandemic.

 

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