Janet Yellen: Coronavirus downturn is 'different than any we've ever experienced'

Janet Yellen: Coronavirus downturn is 'different than any we've ever experienced'
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Former Federal Reserve Chairwoman Janet YellenJanet Louise YellenPandemic reveals flaws of unemployment insurance programs On The Money: McConnell previews GOP coronavirus bill | Senate panel advances Trump Fed nominee who recently supported gold standard | Economists warn about scaled-back unemployment benefits Senate panel advances Trump Fed nominee who recently supported gold standard MORE said Monday that the economic downturn stemming from the coronavirus pandemic is unlike any the U.S. has ever seen.

"The downturn has been rapid and sharp, and it's different than any we've ever experienced in America," Yellen said at a virtual event hosted by the Brookings Institution, where she is a distinguished fellow in residence.

Yellen said that while the depth of the recession is impossible to know at this stage, hope for a so-called V-shaped recovery, in which a quick decline is followed by a quick economic rebound, is a best-case scenario that assumes social distancing could let up by May with the outbreak quickly under control.

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She noted that other outcomes were also likely, possibly leading to a U-shaped recovery or a dreaded L-shaped recovery, with no rapid rebound.

Economic activity in the second quarter, Yellen said, could amount to a decline of 20 percent at an annual rate.

"I'm worried that damage may occur that could lead to a prolonged recession," said Yellen, who served as Fed chairwoman from 2014 to 2018.

A resurgent outbreak requiring more periods of social distancing, she argued, could damage the economy more deeply, leading to more layoffs, more bankruptcy, and more financial damage to firms and households.

Millions of American workers have already been laid off. Last week's report of 3.3 million initial unemployment claims pointed to a 2 percentage point rise in the unemployment rate, from a 50-year low of 3.5 percent up to 5.5 percent, Yellen said.

A recent analysis from the Federal Reserve Bank of St. Louis projected that unemployment would skyrocket to 32.1 percent in the second quarter as 47 million people lose their jobs.

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The economic downturn is a result of the public health measures in place to keep the pandemic from overwhelming the health system and potentially killing millions of Americans. The freeze in business activity, however, has been sudden and sharp, setting it apart from previous economic shocks.

Amy Liu, who directs the Metropolitan Policy Program at Brookings, said Monday that poorer areas would have a harder time recovering from the downturn.

"Economically distressed places often take a decade to rebound from a recession," she said, pointing to cities such as Detroit and New Orleans, which are already dealing with significant coronavirus outbreaks.

"I don't anticipate a V recovery for them," she said.

Yellen credited the Fed for working swiftly to keep credit moving through the financial system. She also praised the $2.2 trillion rescue package signed into law last week that includes key programs to keep people on employers' payrolls.

The overall fiscal response from the three coronavirus bills signed into law add up to $2.8 trillion, about 13 percent of gross domestic product, Yellen said, noting the amount was well above the fiscal response deployed during the Great Recession.