A ‘Double Dip’ in The U.S. Economy is ‘Still Possible,’ Says Former Fed Official

KEY POINTS

  • There’s still a possibility that the U.S. economy will experience a “double dip” if the coronavirus outbreak is not managed well, said Dennis Lockhart, former Atlanta Fed president.
  • A double dip is when an economy returns to a period of decline after briefly recovering.
  • The world’s largest economy needs more fiscal stimulus to “ward off a worst-case scenario,” said Lockhart.

The U.S. economy looks set to rebound in the existing quarter from the previous 3 months’ deep contraction– however it might sink once again if the coronavirus breaks out is not managed well, warned a former Federal Reserve authorities.

Dennis Lockhart, president of the Atlanta Fed from 2007 to 2017, was amongst financial experts and specialists who have raised the possibility of a “double-dip” recession in the U.S. economy. A double dip implies an economy going back to a period of decrease after short healing.

“I continue to believe that looking forward you have to think about a variety of circumstances and among those scenarios would be, undoubtedly, a downhearted one which might be a double dip,” Lockhart informed ” Squawk Box Asia” on Friday.

“If things go terribly with the management of the infection and there’s more cascading– which (Thursday’s) numbers of preliminary claims might recommend– then yes, it’s possible we have a double dip. I don’t think that’s probably the base case, but I think it’s still possible.”

If there’s going to be an efficient effort to fend off a worst-case situation, particularly for portions of the American public that are most susceptible, then it’s going to come from the fiscal side.

He was referring to the preliminary out of work claims in the U.S., which came in simply over 1 million for the week ending August 22, according to the Labor Department. That was the 22nd time that preliminary out of work claims had been available in above the 1 million mark in 23 weeks.

Before Lockhart, other popular policymakers and financial experts who have cautioned about the possibility of a double dip consist of Kansas City Fed President Esther George and previous Morgan Stanley Asia Chairman Stephen Roach.

‘Financial action is the most suitable’

The U.S. has reported more than 5.8 million confirmed coronavirus cases and over 180,000 deaths– the greatest internationally, according to information assembled by Johns Hopkins University.

Lockdown procedures of differing degrees throughout the nation to include the break out sent the U.S. economy plunging by 31.7% on an annualized basis in the 2nd quarter, said the Commerce Department. That was the nation’s worst quarterly fall in GDP on record.

Lockhart stated the U.S. economy– which is the world’s biggest– needs higher fiscal support because using fiscal policy is nearing its limitations. He discussed that the Fed has signified that rates of interest will be kept near absolutely no for “quite a long time into the future” with its new approach to inflation, and there isn’t much space for “dramatic increases” in its property purchase program.i

But there’s been an absence of development as Congress and the White Home stay secured a stalemate over another round of fiscal stimulus, kept in mind the previous Atlanta Fed president.

“If there’s going to be a reliable effort to ward off a worst-case circumstance, especially for parts of the American public that are most vulnerable, then it’s going to originate from the fiscal side,” he stated.

“That style has been repeated several times by Jay Powell and I completely agree that financial activity is the most proper financial action at this time and we need it.”

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