Fed’s Bullard Says ‘Full Recovery’ for U.S. in Reach by Year End

(Bloomberg) -- Federal Reserve Bank of St. Louis President James Bullard, in the most upbeat comments by a central banker since the start of the Covid-19 outbreak, said the U.S. economy may surge at a 35% annualized rate in the third quarter and the nation may be close to a complete recovery by year-end.

Rapid expansion in gross domestic product in the third quarter “may put the U.S. economy within reach of a sort of ‘full recovery’ by the end of 2020,” Bullard, who doesn’t vote on monetary policy this year, said in a virtual presentation to the Global Interdependence Center on Thursday. Estimates on Bloomberg show the economy rebounding an annualized 25% in the third quarter from the prior three months, when it recorded the sharpest plunge on record.

With real GDP possibly rising at a 10% rate in the fourth quarter, national income at the end of this year would be in reach of the average level for 2019, Bullard said. The comments contrast sharply with those of most other Fed officials, who have strongly urged for more fiscal aid to keep what they see as a tenuous recovery on track.

“These are big numbers, but not outside the realm of possibility,” he said. “I expect this rebound to continue in the U.S. as businesses learn how to produce products and services safely using simple, existing technology.”

‘Considerable Resources’

Speaking in a Bloomberg Television interview earlier this week, Bullard said that he believed the economic recovery would remain on track even without more fiscal aid.

Fiscal support, which has totaled about $3 trillion, has equaled about 14.5% of 2019 GDP at its fourth-quarter run rate, “so in an aggregate sense there are considerable resources pledged to combat the crisis,” Bullard said in his presentation.

In a press briefing following the speech, Bullard said that Fed policy with near-zero interest rates for the next several years would not change even if his optimistic forecast is met. He said he is less worried by a second wave of the virus bringing economic harm.

“Fed policy would be the same regardless of how optimistic or less optimistic you might be about the outlook,” he said. “I don’t think it’s that reasonable to expect a second-wave scenario to be the one that would dominate your forecasts.”

The Fed’s asset purchases program, or quantitative easing, is unlikely to be changed soon as well and there’s no need to wind it down with positive data, Bullard said.

“I think it’s premature to think about anything like that,” he said.

The labor-market outlook is bright, the St. Louis Fed official said in his presentation.

Many of the layoffs during the pandemic were temporary furloughs so “there is room for a substantial decline in the official unemployment rate in the months ahead.”

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