(Reuters) - The U.S. economy is likely to contract sharply during the second quarter and the unemployment rate could surge due to intentional business shutdowns prompted by the coronavirus pandemic, but there is a chance the recovery could start in the second half of the year, Federal Reserve Vice Chair Richard Clarida said on Tuesday.
“We’re living through the most severe contraction in activity and surge in unemployment that we’ve seen in our lifetimes,” Clarida said during an interview with CNBC.
More than 30 million Americans have filed for unemployment claims in the last six weeks in a wave of job losses that could lead to a “very elevated” unemployment rate, Clarida said. “Unfortunately, the unemployment rate is going to surge to numbers that we’ve not seen probably since the 1940s,” he said.
Still, Clarida said he was hopeful the Fed could limit lasting damage to the economy, adding that it was “in the range of possibility” for the economic recovery to start in the second half of the year once businesses reopen and people return to work.
The Fed is using its full range of tools to soften the economic blow of the virus, including low interest rates, forward guidance, asset purchases and a suite of emergency lending facilities meant to keep credit flowing to businesses and households, Clarida said.
Policymakers are taking steps to help make the recovery as robust as possible when it arrives, Clarida said. But the timing of the rebound will depend on the virus, he said.
“This pandemic does pose really considerable risk to the outlook, and the course of the economy is really going to depend on the course of the virus and the mitigation efforts,” Clarida said.
Reporting by Jonnelle Marte; Editing by Leslie Adler and Jonathan Oatis