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Fed's Bullard says US economy must 'throttle back' to properly fight coronavirus

Written by Jasir Jawaid

Federal Reserve Bank of St. Louis President James Bullard advocated for the executive and legislative branches to declare a "National Pandemic Adjustment Period" that would acknowledge the necessary economic burden of fighting the coronavirus pandemic while attempting to alleviate its worst economic effects.

The period, which he referred to as NPAP, would initially extend from now until the end of the second quarter but could be shortened or extended depending on how the virus progresses. Bullard said the NPAP could accomplish three goals: greatly reduce economic activity, keep households and firms whole, and pay for the pandemic response.

"The first goal during the NPAP is to intentionally reduce (reduce!) economic activity in order to meet public health objectives," Bullard wrote in a blog post on the St. Louis Fed website.

Production should only be carried out if the good or service is deemed "essential" or if it is something that can be produced in a manner that does not risk transmission of

the virus, he added.

The throttling back of U.S. economic activity — by about 50%, according to Bullard's calculations — should not be viewed as a recession if it is undertaken intentionally to meet healthcare objectives, the St. Louis Fed president stated.

(James Bullard)

To accomplish the NPAP's second goal, Bullard proposed renaming unemployment insurance "pandemic insurance" and recommended that it be used "extensively" to preserve workers' livelihoods.

"My initial estimate of the level of pandemic insurance that may be appropriate during the NPAP period is 30%," Bullard stated. "That is, up to 30% of the workforce could be using this program as part of an optimal policy response to the pandemic."

For companies, Bullard acknowledged the proposals under consideration in Congress to provide loans to large and small businesses.

For goal three, the St. Louis Fed president said that households' consumption levels will drop in tandem with the drop in national income, which he credited to the nature of "hunkering down."

This article was published by S&P Global Market Intelligence on the S&P Capital IQ Pro platform.


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