There is a possibility that the unemployment rate will drop sharply in the next six months, St. Louis Fed President James Bullard said Tuesday.
In his webcast comments to the New York Economic Club, Bullard noted that many Americans are still informing the government that they are on a temporary layoff and assume they will be removed from the market.
If these workers were retired, the unemployment rate would decrease to 4.5%. If the level falls to a more normal level of around one million workers, the unemployment rate would still drop to 5.1%.
“So this suggests that there is a lot of room, if we play our cards right, to reduce the unemployment rate,” Bullard said.
Due to the coronavirus crisis, things can go wrong and the journey is likely to be uneven, Bullard said.
The St. Louis Fed President was more optimistic about the prospects than his colleague, Fed Governor Lael Brainard. In a speech delivered on Tuesday, Brainard warned of a weak economic outlook and said the central bank may have to resort to new policy tools to boost growth.
While surveys using new data suggest that job growth has slowed in June, the economy is still adding jobs, though not as fast as in May and June, Bullard said.
He said that progress in managing the health crisis has been substantial, but COVID-19 has been persistent.
“We have certainly passed the initial phase of the crisis, but the crisis is persistent,” said Bullard.
The St. Louis Fed president said the baseline scenario in which the economy “continues to develop” between May and June is “reasonable,” he said.
“We need better execution of a health policy based on granular risk, which will be essential to keep the economy out of depression,” he said.
“My base case is that we will be able to achieve this in the next six months and return to a more normal US economy,” he said.
The downside risks “remain substantial,” he added.
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