Federal Reserve officials warned the virus outbreak and a partial shutdown of the U.S. economy would result in a decline in the current quarter of historic proportions and risk the potential of massive bankruptcies that could create a lasting scar, Bloomberg News reported. “You will get business failures on a grand scale and you will be taking risks that you would go into depression” if shutdowns persist, Federal Reserve Bank of St. Louis President James Bullard said yesterday. Cleveland Fed President Loretta Mester noted similar concerns after outlining a baseline outlook that included unemployment reaching or exceeding 20 percent. That could happen, she said, if the virus isn’t contained effectively this year or “if there is considerably more harm in terms of business and personal bankruptcies or if instabilities in the banking system arise.” Minneapolis Fed President Neel Kashkari warned of a “gradual, muted recovery” from the outbreak, while Dallas Fed President Robert Kaplan said that the economy will need more fiscal stimulus if the jobless rate continues to rise. Fed officials in mid-March cut interest rates to near zero and have unveiled unprecedented lending programs to cushion the blow from the pandemic. Even so, economic output may plunge by about 40 percent in the current quarter, Bullard warned, adding that the government orders to keep businesses closed are unsustainable. “We cannot hit the pause button for very long in major economies around the world, certainly not in the U.S.," Bullard said. "There’s a 90-day limit or shelf life on this policy, maybe 120 days shelf life.”
