Robert Kaplan, the president of the Dallas Federal Reserve expects that the unemployment rate will ultimately fall to 8 percent by the end of the year. But, first, we’ll need to get through a tough period where unemployment may peak in the mid-teens.
Kaplan said the recovery will follow a “severe contraction” during the second quarter, and the economy may be slower to recover than some would like. He describes it as a “U-shaped” recovery that will follow pausing the economy as authorities wrestle with containing the coronavirus.
Kaplan expects that the economy will begin recovering in the third quarter. “The issue is,” Kaplan said, “what’s the strength of the rebound?” Kaplan believes it’ll be below 10 percent, but likely closer to 8 percent. “Then it’s going to take a while for us to work that off, and so the consumer is going to be much more cautious for obvious reason. There’s just an open question about what the strength of the consumer is going to be once we get past this virus and we get into the fourth quarter. That’s a big challenge and question mark for the economy,” Kaplan added.
The U.S. Labor Department reported more than 6.6 million unemployment claims last week. When tallied with the previous week, the U.S. has seen around 10 million coronavirus-related claims.
Goldman Sachs predicts a similar scenario to Kaplan, forecasting a 15 percent unemployment peak. On the other hand, St. Louis Fed economists believe the number of unemployed Americans could be up to 47 million, or 32 percent unemployment.
“Managing down the unemployment rate is going to be challenging and the consumer’s not going to be as strong as he or she was going into this crisis,” Kaplan said. “That’s high on top of the list of challenges we see coming out of this crisis.”
The federal government has brought down interest rates to almost zero. It’s also initiated a few programs to help curb the economic impacts of the outbreak. But Kaplan believes Congress will need to do more fiscally.
“I think we will actually need stimulus from here,” Kaplan said. “That’s not a Fed decision, that’s a Congress fiscal authority decision. But it’s going to be needed.”