Coronavirus testing, vaccine key to economic recovery, Fed officials say

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Uncertainty remains the only constant regarding the coronavirus pandemic, and two Federal Reserve Bank presidents offered positive thoughts, although no definitive answers.

Although they said economy was in a good place before the crisis began, it’s still impossible to accurately predict the duration and depth of the downturn.

To get the economy open again, Federal Reserve Bank of St. Louis President James Bullard said testing is the key, while Federal Reserve Bank of Chicago President Charles Evans thinks a vaccine is the answer.

The economic recovery can be V-shaped if it’s handled properly, according Bullard.

“There’s no reason why [the economy] can’t come back in a V-shape, if it’s managed appropriately,” he told the St. Louis Regional Chamber’s COVID-19 Briefing Series.

Likening the economy to a car on the highway, Bullard explained, if you’re driving at 70 miles an hour and then come to a construction zone, where you have to slow down, it doesn’t mean there’s anything wrong with the car.

They key to getting back to normal is widespread testing. “We want to ramp that up at all costs,” he said. Just like a beach with a shark in the water, people won’t return there until it’s safe. “You have to show people they’re not at risk when they go to work, or a restaurant, or perform normal daily activities."

And while “quarantine is a crazy, inefficient policy,” and shouldn’t be used “unless you have to,” he said, “it was the right response.”

But having “healthy people sitting at home” will not be good policy in the long run, he said.

Still, combating the spread of the virus “can take twists and turns,” so vigilance remains important.

Speaking at the W.L. Mellon Speaker Series, Evans said, “many things have to go right to mitigate the economic pain.” While the downturn will be “deep” and “the risk will be with us for a while,” he said, having a vaccine available is essential. “The risk from a potential second or third wave must be reduced.”

Federal Reserve Bank of Chicago President Charles Evans
Federal Reserve Bank of Chicago President Charles Evans

If future quarantines are not needed, it raises “the odds of a quicker, stronger recovery.” So, “getting it right early on is critical.”

A best-case scenario still leaves everyone “less prosperous” after the downturn than they were before, and “no one should imagine they are financially immune.”

This crisis differs from the financial crisis because the solution to this crisis “seems to be shutting down the economy for some time,” Evans said.

And, he said he hopes, the downturn, while “very sharp” may be short, with recovery in the second half of the year. Since he sees recovery coming, he doesn’t feel it’s important to quantify “very sharp.”

Although “the economic fundamentals going into this were good,” the virus mitigation efforts show the “fragility” of small businesses. “Losses are going to happen,” he said, “we need to get to the second half of the year and see what happens from there.”

While the nation’s debt level will be higher, Evans said he doesn’t fear rising inflation. “If anything, I’d worry it will still be too low.”

March import prices fell 2.3%, its biggest decrease since January 2015, the Labor Department reported. In February, prices fell a revised 0.7%, first reported as a 0.5% decline.

Export prices fell 1.6% in the month, also the biggest drop since January 2015, after a 1.1% fall in February.

Economists polled by IFR Markets expected a 3.5% decline in imports and a 2.0% drop in export prices.

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Coronavirus Federal Reserve Federal Reserve Bank of Chicago Federal Reserve Bank of St. Louis Charles Evans James Bullard Monetary policy Economic indicators