Boston Fed chief executive Eric Rosengren said Wednesday he expects the economic slowdown from the novel coronavirus to be deeper and more protracted than many other experts have forecast, and that Massachusetts will likely take a big hit.
Rosengren expects that the US unemployment rate will rise to at least 10 percent by the end of the second quarter, from 3.5 percent in February. Massachusetts may have an even higher jobless rate, and sooner, than other parts of the country, because shutdowns started here before many states, he said.
But he stressed that it’s hard to know exactly how high unemployment will go.
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An economist by training, Rosengren said there’s no way to forecast the extent of the economic crisis without first having a clear idea of the extent of the health crisis. The two are inextricably linked.
In fact, he doesn’t expect the economy to bounce back until COVID-19 tests are widely available and widely used. In an interview with the Boston Globe, Rosengren said he expects many people to be uncomfortable about resuming normal life — going to the office, taking public transportation, eating out at restaurants — until we have a better handle on who has the virus.
“We’re not testing everybody [now],” Rosengren said on Wednesday. “Without testing everybody, you don’t know how many people are infected. Until you can test everybody, it’s going to be difficult for the economy to fully come back. … As long as it’s in the general population, with many people being asymptomatic, it’s going to be very hard for people to be comfortable … going back to work.”
James Bullard, Rosengren’s counterpart in St. Louis, has predicted the jobless rate getting as high as 30 percent, albeit for a short period.
Even 10 percent would put the jobless rate on par with the peak during the Great Recession. But Rosengren noted that places such as Massachusetts began social distancing in a serious way will be more likely to recover at a faster pace.
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“The sooner governments are successful at social distancing has a big impact on how long this lasts,” he said.
Rosengren spoke with the Globe prior to joining the Greater Boston Chamber of Commerce on Wednesday for an online seminar to discuss the actions the Federal Reserve system is taking to protect the economy amid this cataclysmic shock. In his prepared remarks, Rosengren stressed that it’s time for everyone to pitch in. The financially painful act of social distancing is just one example of that shared sacrifice. He also wants to ensure that lower-income workers are not left behind.
Unemployment, he said, will be disproportionately distributed among hourly workers — the people who staff hotels and restaurants, for example. This underscores his concern that the coronavirus pandemic will worsen income inequality in this country. He said he worries that unemployment assistance, even at a newly fortified level, will not last long enough for many people who need it. Access to health care for lower-wage earners will also be a big problem.
“They have more challenges if they do get sick and don’t have the capacity to finance a long period of convalescence,” Rosengren said. “Many of the problems we already have had are clearly going … to be exacerbated by this pandemic.”
The Fed has taken a number of steps to ease the flow of credit and cash: lowering the federal funds rate to near-zero, buying up Treasury bonds, stabilizing the money-market system. Congress just passed a huge $2 trillion stimulus package, aimed in part at helping small businesses weather this storm.
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How effective these extreme measures will be, he said, remains to be seen. He said he is hopeful that the Fed and Congress can minimize some of the hits the economy is taking. But there’s no way they’ll be completely mitigated.
“I do think it’s going to be a more persistent problem than many people are estimating,” Rosengren said. “Individuals and firms have to take on more debt. … I do expect that’s going to cause a longer tail to this than many were anticipating.”
Jon Chesto can be reached at jon.chesto@globe.com. Follow him on Twitter @jonchesto.
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