Restarting the U.S. economy comes down to the availability of testing to identify the carriers of COVID-19 and protect the uninfected, according to former Federal Reserve Chairman Janet Yellen.
Absent that, many Americans will stay in their homes, even if states lift restrictions, and not engage in the consumer spending that accounts for about 70% of U.S. GDP, she said.
“Our focus needs to be on testing and trying to get the pandemic under enough control so that we can begin to restore business activity,” Yellen said in an interview with CNBC on Monday.
Yellen said the pandemic has created a “huge, unprecedented, devastating hit” to the economy that could result in second-quarter GDP dropping a record 30% from a year ago, though it’s not in the same category as the Great Depression.
“Unemployed 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,” Yellen said. “We started with an economy that was in good shape, with a financial sector that was basically sound,” she said.
“This is a health crisis,” said Yellen, who always made clear to the press that her preferred title was chairman of the Fed, instead of chairwoman. “It’s having severe economic effects, but if we’re successful in supporting people’s income during this time, as the government can be, I believe we will be able to get back to a normally functioning economy in much shorter order than after the Great Depression or even the Great Recession.”
Last week’s initial claims data measuring the number of people who apply for unemployment was “absolutely shocking,” Yellen said. In that report, the Labor Department said the number of people seeking unemployment benefits more than doubled to 6.65 million from the prior week’s record number, boosted by a bill passed in Congress that extended eligibility to gig workers.
Yellen pointed out that many of those people who lost their jobs reported being on a temporary layoff.
“It’s heartening, in the recent employment report, even though it’s stale, to see that a lot of the unemployment was temporary job loss,” Yellen said. “That suggests workers are still connected to their firms, and if activity can restart that they’ll be able to go back to their old jobs.”
The number of unemployed persons who reported being on temporary layoff in March more than doubled to 1.8 million while the number of permanent job losses rose to 1.5 million, the Bureau of Labor Statistics said on Friday.
The unemployment rate rose to 4.4% in the labor report, which is based on surveys conducted during the first half of the month. Most of the job losses related to the pandemic occurred in the final week of March and won’t show up in the data until the April report is released in the first week of May, Yellen said.
“If we had a timely unemployment statistic, the unemployment rate would probably be up to 12 or 13% at this point, and moving higher,” Yellen said.
Yellen has suffered some of the same anxieties as other American families during the pandemic, according to the Washington Post. Her son was quarantined in the basement of her Washington D.C.-area home for two weeks after flying back from London last month and getting caught in massive lines at the airport that prevented him from practising social distancing.
“Yellen, one of the world’s top economists, leaves plates of food for him at the top of the basement stairs,” the March 20 article said.
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