THE LOWS OF THE MORNING, S&P DOWN 88, NASDAQ DOWN 222.
THE CORONAVIRUS PANDEMIC HAS
QUICKLY EVOLVED FROM A HEALTH
CRISIS INTO A FINANCIAL CRISIS
AS WELL, SHUTTERING BUSINESSES,
UPENDING ENTIRE INDUSTRIES AND
SENDING FINANCIAL MARKETS
REELING.
REELING. IN RESPONSE, THE FEDERAL RESERVE
HAS TAKEN UNPRECEDENTED ACTION.
THE ST. LOUIS FEDERAL RESERVE
ESTIMATED THAT THE NUMBER OF
PEOPLE WHO COULD BE LAID OFF IN
THE SECOND QUARTER COULD TOP
47 MILLION AND THE UNEMPLOYMENT
RATE COULD HIT 32%.
JOINING ME RIGHT NOW ON THE
TELEPHONE IS THE PRESIDENT OF
THE ST. LOUIS FEDERAL RESERVE,
JAMES BULLARD.
JAMES BULLARD. MR. PRESIDENT, ALWAYS A PLEASURE
TO TALK WITH YOU.
THANKS VERY MUCH FOR JOINING ME
THIS MORNING.
THIS MORNING. >> GREAT TO BE HERE, MARIA.
MARIA: SO TELL US WHAT’S BEHIND
THIS CAUTIOUS EXPECTATION HERE
ON UNEMPLOYMENT.
ON UNEMPLOYMENT. CAN YOU WALK US THROUGH HOW THE
BANK GETS TO THAT STEEP WORRY OF
AN UNEMPLOYMENT RATE
SKYROCKETING AND ALL OF THESE
LAYOFF TOSS COME?
>> THAT 47 MILLION IS THE NUMBER
OF PEOPLE AT RISK.
THEY’RE IN JOBS THAT ARE
CUSTOMER-FACING OR WOULD
OTHERWISE BE IMPACTED BY THE
VIRUS SITUATION.
VIRUS SITUATION. SO THE QUESTION WOULD BE HOW
MANY OF THOSE PEOPLE ARE
ACTUALLY GOING TO GO AND SEEK
UNEMPLOYMENT INSURANCE WHICH I
WOULDN’T CALL UNEMPLOYMENT
INSURANCE YET.
INSURANCE YET. WE CALL THAT PANDEMIC RELIEF.
BUT WE THINK ANYWHERE BETWEEN --
COULD SEND THE UNEMPLOYMENT RATE
ANYWHERE BETWEEN 10% AND
ACTUALLY THE HIGH END IS VERY
HIGH, 42%.
HIGH, 42%. BUT THAT WOULD REQUIRE ALL OF
THOSE PEOPLE TO GO AND COLLECT
PANDEMIC RELIEF AND I’M NOT SURE
THAT THAT’S REALLY GOING TO
HAPPEN.
HAPPEN. BUT THE 32% IS SOMEWHERE IN THE
MIDDLE.
MIDDLE. BUT IT JUST SHOWS YOU THAT THIS
IS A SPECIAL QUARTER.
IT’S GOING TO BE A SPECIAL
QUARTER IN MACROECONOMIC HISTORY
FOR THE UNITED STATES.
WE HAVE A PANDEMIC ADJUSTMENT
PERIOD.
PERIOD. INSTEAD OF MAXIMIZING OUTPUT IS
WHAT WE USUALLY DO, WE’RE
ACTUALLY TRYING TO MINIMIZE
OUTPUT.
OUTPUT. WHICH I THINK EVERYONE KNOWS THE
DRILL HERE.
DRILL HERE. WE’RE TELLING PEOPLE TO GO HOME,
TAKE IT EASY, WE’RE NOT GOING TO
BE DOING A LOT OF WORK, WE’RE
NOT GOING TO BE PRODUCING A LOT
OF THINGS DURING THE SECOND
QUARTER AND THE NUMBERS ARE ALL
GOING TO LOOK VERY FUNNY
COMPARED TO NORMAL QUARTERS
WHERE WE’RE TRYING TO PRODUCE AS
MANY GOODS AND SERVICE AS WE CAN
AND SO EVERYTHING’S UPSIDE DOWN
IN TERMS OF INTERPRETING THE
NUMBERS.
NUMBERS. BUT I THINK THERE ARE PLENTY OF
RESOURCES.
RESOURCES. I THINK WE CAN GET THROUGH THIS.
I LIKE THE BILL THAT WAS PASSED.
I LIKE THE ACTIONS THAT THE FED
HAS TAKEN.
HAS TAKEN. SO I THINK THIS IS ALL VERY
DOABLE.
DOABLE. BUT IT’S A ONE-TIME SITUATION,
VERY UNUSUAL, AND WE HAVE TO
WORK HARD TO GET THROUGH IT
HERE.
HERE. MARIA: SO I WANT YOU TO WALK
THROUGH THE MOST EXTRAORDINARY
MOVES BY THE FEDERAL RESERVE
BECAUSE COMBINING THE FED AND
THE TREASURY’S BALANCE SHEET IN
TERMS OF LEVERAGING UP THE
AMOUNT OF MONEY TO LEND OUT IS
OBVIOUSLY INCREDIBLY POWERFUL.
WHAT DO YOU SEE AS THE MOST
IMPORTANT POLICY CHANGE THAT THE
FED HAS MADE IN THE FACE OF THIS
PANDEMIC?
PANDEMIC? JAMES?
JAMES? >> WELL, WE’VE DONE QUITE A FEW
THINGS.
THINGS. OBVIOUSLY, WE LOWERED THE RATE,
THE POLICY RATE RIGHT AWAY.
THAT WAS JUST WEEKS AGO, I GUESS
TWO WEEKS AGO OR SOMETHING.
SEEMS LIKE A LONG TIME.
THEN WE SET UP PROGRAMS TO MAKE
SURE MARKETS ARE FUNCTIONING
APPROPRIATELY.
APPROPRIATELY. WE HAD SOME LIQUID AT THIS -- LI
IN THE U.S. TREASURY MARKET
WHICH NEEDS TO BE FUNCTIONING
APPROPRIATELY IN A SITUATION
LIKE THIS AND OTHER MARKETS
STARTED TO FREEZE UP A LITTLE
BIT.
BIT. WE BROUGHT OUT A LOT OF THE
PROGRAMS FROM THE 2007-2009
PERIOD AND I THINK WE’RE ABLE TO
RESTORE LIQUIDITY AND MARKET
FUNCTIONING.
FUNCTIONING. WHAT YOU REALLY WANT, INVESTORS
ARE VERY NERVOUS, OBVIOUSLY AND
OBVIOUSLY IT’S AN UNPRECEDENTED
SITUATION, SO WHAT YOU WANT IS
PRICE DISCOVERY, YOU WANT NORMAL
PRICING, YOU WANT PEOPLE TO BE
ABLE TO PRICE ASSETS AND I THINK
WE’RE GETTING CLOSER TO THAT.
IT’S NOT PERFECT YET BUT IT’S
MUCH CLOSER THAN IT WAS EVEN A
FEW DAYS AGO.
SO THAT’S BEEN VERY IMPORTANT
AND THEN --
MARIA: YEP.
MARIA: YEP. >> TEAMING UP WITH THE
SO-CALLED 13, 3 AUTHORITIES
WHICH ARE UNUSUAL CIRCUMSTANCES,
THEY CAN DO LENDING IN
CONJUNCTION WITH THE TREASURY,
THOSE ARE VERY POWERFUL TOOLS.
THOSE ARE IN THE LEGISLATION AND
THEY GOT PASSED JUST A FEW DAYS
AGO AND SO I THINK THAT WILL
HELP US A LOT IN DEALING WITH
THIS VERY SPECIAL QUARTER, THIS
REALLY UNPRECEDENTED QUARTER IN
U.S. MACROECONOMIC HISTORY.
MARIA: AND YOU JUST MENTIONED
THE LENDING FACILITIES.
YESTERDAY YOU ALSO BROADENED
THAT OUT TO INTERNATIONAL.
THE FED LAUNCHING THE TEMPORARY
LENDING FACILITY FOR THE FIRST
TIME THAT WOULD ALLOW FOREIGN
CENTRAL BANKS TO CONVERT
HOLDINGS OF TREASURY SECURITIES
INTO DOLLARS IN A BID TO
ALLEVIATE STRAINS IN THE GLOBAL
MARKETS AS WELL.
YOU SAID THAT THE SECOND QUARTER
IS SPECIAL.
IS SPECIAL. WE’RE GOING THROUGH THIS SPECIAL
MOMENT IN TIME.
ARE YOU BELIEVING THAT THIS
COULD JUST BE THE SECOND QUARTER
OR ARE WE GOING TO HAVE A
SPECIAL THIRD QUARTER AS WELL?
>> YEAH, THE ANALOGY I LIKE FOR
THIS IS THAT YOU’RE DRIVING THE
CAR DOWN THE HIGHWAY AT 70 MILES
AN HOUR, THAT WAS WHERE WE WERE
IN THE FOURTH QUARTER AND THE
FIRST PART OF THE FIRST QUARTER.
AND NOW YOU’VE COME TO A
CONSTRUCTION ZONE AND HAVE YOU
TO SLOW WAY DOWN.
SO THERE’S NOTHING WRONG WITH
THE CAR.
THE CAR. BUT YOU’VE GOT TO SLOW WAY DOWN.
IT’S A SPECIAL SITUATION.
YOU WANT TO WIND YOUR WAY
THROUGH THE CONSTRUCTION ZONE.
THEN YOU’LL BE ABLE TO SPEED UP
AGAIN.
AGAIN. SO THAT’S REALLY WHERE WE WANT
TO BE HERE.
WE WANT TO KEEP THE ECONOMY
INTACT, ALL READY TO GO ONCE THE
VIRUS GOES AWAY, WE’LL MOVE BACK
INTO FULL PRODUCTION.
BUT FOR NOW, WE’RE TELLING
EVERYBODY TO NOT PRODUCE, TO GO
HOME.
HOME. MARIA: YEAH.
MARIA: YEAH. I MEAN, THESE ARE EMERGENCY
MOVES, JAMES, AND OF COURSE ON
THE 15th THE EMERGENCY MOVE ON
THAT SUNDAY WHEN THE FED DROPPED
THE BENCHMARK INTEREST RATES ALL
THE WAY TO ZERO.
LAUNCHED A NEW ROUND OF
QUANTITATIVE EASING,
QUANTITATIVE EASING, $700 BILLION WORTH OF ASSET
PURCHASING WITH THOSE
MORTGAGE-BACKED SECURITIES AND
TREASURIES.
TREASURIES. A LOT OF PEOPLE ARE WONDERING
WHAT OTHER TOOLS DO YOU HAVE IN
THE BOX?
THE BOX? I MEAN, WHAT IF THIS KEEPS
GOING?
GOING? WE ALREADY HAVE INTEREST RATES
THAT ARE NEGATIVE IN SOME
CORNERS OF THE TREASURY CURVE.
WHAT ARE YOU THINKING IN TERMS
OF THE NEXT TOOL THAT YOU MAY
NEED GIVEN THE FACT THAT YOU’VE
SORT OF PUT ALL THE BAY BAZOOKAS
THERE AT THIS POINT, RIGHT?
>> WE HAVE DONE A LOT.
THE 13, 3 LENDING AUTHORITIES
ARE QUITE POWERFUL.
THE TREASURY SECRETARY HAS NOTED
THAT YOU COULD LEVERAGE OUT TO I
THINK HE SAID 4 TRILLION BASED
ON THIS ONE PROGRAM.
SO I THINK THERE’S PLENTY OF
RESOURCES HERE.
RESOURCES HERE. JUST TO SIZE WHAT’S HAPPENING
FOR YOUR VIEWERS, IN A NORMAL
QUARTER IN VERY ROUND NUMBERS
THE U.S. WOULD PRODUCE ABOUT
$5 TRILLION WORTH OF GOODS AND
SERVICES.
SERVICES. SO WE’RE GOING TO THROTTLE DOWN
AND ONLY PRODUCE ESSENTIAL
SERVICES PLUS WHATEVER WE CAN
PRODUCE FROM OUR HOUSES, WORK
FROM HOME.
FROM HOME. MARIA: OKAY.
MARIA: OKAY. >> AND SURELY THAT IS SOMETHING
LIKE HALF OF WHAT WE WOULD
NORMALLY PRODUCE.
NORMALLY PRODUCE. AND IT DEPENDS IF IT LASTS THE
WHOLE QUARTER OR NOT.
BUT JUST SUPPOSE IT LASTS THE
WHOLE QUARTER.
WHOLE QUARTER. WELL, THAT WOULD BE TWO
AND-A-HALF TRILLION.
AND-A-HALF TRILLION. SO THAT’S TWO AND-A-HALF
TRILLION OF INCOME THAT
HOUSEHOLDS DON’T GET DURING THE
SECOND QUARTER AND A WAY TO PAY
FOR THAT IS PARTLY JUST TO
CONSUME LESS.
CONSUME LESS. WE’LL PROBABLY CONSUME LESS
BECAUSE WE CAN’T DO A LOT OF THE
THINGS THAT WE NORMALLY DO.
BUT ALSO WE’RE JUST GOING TO
HAVE A GOVERNMENT GO OUT AND
BORROW AND THEY’RE GOING TO TRY
TO KEEP ALL THESE HOUSEHOLDS
WHOLE AND ABLE TO PAY THEIR
BILLS IN THE SECOND QUARTER AND
THEN WE’LL COME INTO THE THIRD
QUARTER, WE’LL TRANSITION TO
SOMETHING THAT WILL TAKE A
LITTLE WHILE TO GET THE -- TO
TURN EVERYTHING BACK ON AND THEN
BY THE TIME WE GET TO THE FOURTH
QUARTER, I THINK THAT WILL BE A
BOOM QUARTER FOR THE U.S.
ECONOMY, EVERYTHING WILL BE BACK
ON AND WE’LL BE IN FULL THROTTLE
AGAIN.
AGAIN. MARIA: SO YOU THINK THE FOURTH
QUARTER WILL BE A BOOM QUARTER.
WHAT’S A BOOM QUARTER?
YOU THINK GDP CAN RALLY LIKE
SORT OF IN THE 5 TO 8% RANGE
WHICH IS A LOT OF PEOPLE HAVE
TALKED ABOUT THOSE NUMBERS?
>> MARIA, WE HAVE TO GET -- THIS
IS WAY OUT OF --
MARIA: TOO EARLY TO TELL.
>> IF YOU LOOK AT CHINA -- IF
YOU LOOK AT CHINA, SOME OF THE
ESTIMATES ON CHINA ARE DOWN 50%
IN THE FIRST QUARTER, PLUS 60%
IN THE SECOND QUARTER.
SO THE KINDS OF THINGS THAT WE
NORMALLY TALK ABOUT, PLUS ONE OR
TWO OR MINUS ONE OR TWO OR
SOMETHING IS JUST OFF THE
SCALES.
SCALES. SO IT TOTALLY MAKES SENSE,
YOU’RE TRYING TO DELIBERATELY
SLOW THE ECONOMY DOWN IN THE
SECOND QUARTER AND THEN IT’S
GOING TO SPEED UP IN THE THIRD
QUARTER AND IT’S GOING TO BE
GOING VERY FAST IN THE FOURTH
QUARTER.
QUARTER. I THINK THAT’S THE RIGHT WAY TO
THINK ABOUT THIS.
ALL VIRUSES EVER HAVE BEEN
TEMPORARY.
TEMPORARY. MARIA: ALL VIRUSES HAVE BEEN
TEMPORARY.
TEMPORARY. I LIKE TO HEAR THAT ON TOP OF
ALL OF THIS WE HAVE OIL PRICES
WHERE THEY ARE.
HOW TOUGH IS THAT MAKING THE
SITUATION GIVEN THE FACT WE’RE
EXPECTING BANKRUPTCIES HERE?
REAL QUICK, JAMES.
WE’RE RUNNING OUT OF TIME.
SORRY.
SORRY. >> OIL IS GOING TO HURT TEXAS
AND HURT OUR PRODUCTION SO
THAT’S GOING TO BE -- THAT’S AN
EXTRA FACTOR, THOUGH, ON THIS.
AND OIL IS A BOOM, BUST KIND OF
CYCLE ANYWAY, SO THAT’S -- IT’S
TOUGH FOR THEM.
MARIA: SO IN TERMS OF THE OIL
SECTOR, THIS WAS ONE OF OUR
STRONGEST AREAS.
STRONGEST AREAS. DO YOU THINK WE’LL SEE A LOT OF
BANKRUPTCIES THERE, JAMES?
I MEAN, LOOKING AT OIL, WHERE IT
IS AT $20 A BARREL, IT BROKE 20
THE OTHER DAY, I KNOW THAT SORT
OF COMPLICATES AN ECONOMY EVEN
FURTHER BECAUSE THIS WAS ONE OF
THE KEY PLACES WE WERE SEEING
JOB CREATION.
JOB CREATION. >> YEAH.
>> YEAH. IT’S A TOUGH SITUATION AND
SAUDIS AND THE RUSSIANS DECIDED
TO HAVE A PRICE WAR JUST AS
GLOBAL DEMAND WAS COLLAPSING.
I’M NOT SURE THAT WAS THE WISEST
THING THERE.
THING THERE. BUT THE ONLY THING I CAN SAY IS
IT IS A BOOM, BUST BUSINESS.
WE HAVE SEEN PERIODS WHEN OIL
PRICES HAVE GONE EXTREMELY LOW
AND THEN THEY’VE RALLIED LATER.
SO I THINK THE PLAYERS IN THAT
MARKET UNDERSTAND THAT -- HOW
VOLATILE THIS WORLD REALLY IS
FROM THEIR POINT OF VIEW.
WE HAVE GREAT PRODUCERS OUT
THERE AND THEY’LL FIND A WAY TO
LIVE AND FIGHT ANOTHER DAY.
MARIA: YEAH.
MARIA: YEAH. AND BEFORE YOU GO, JAMES, REAL
QUICK, YOU SAID WE’LL BORROW
MORE.
MORE. WE KEEP BORROWING.
WE’VE GOT ALL THESE STIMULUS
PACKAGES.
PACKAGES. THE PRESIDENT’S TALKING ABOUT A
FOURTH PACKAGE.
FOURTH PACKAGE. WHEN DOES THE DEBT AND DEFICITS,
WHEN DO THE DEBT AND DEFICITS
BECOME A REAL ISSUE, JAMES?
BECAUSE WE’RE TALKING ABOUT --
WE’RE ADDING TO OUR DEBT EVERY
DAY WITH THIS.
I RECOGNIZE WE’RE IN A CRISIS
SITUATION.
SITUATION. BUT YOU ALSO WANT TO SEE SOME
SPENDING CONSTRAINT AT SOME
POINT, RIGHT?
POINT, RIGHT? >> I AGREE WITH THAT.
BUT IF EVER THERE WAS A TIME
WHEN YOU WANTED TO DO A LOT
HERE, I THINK THIS IS THE TIME.
THIS IS A VERY UNUSUAL
CIRCUMSTANCE AND YOU WANT TO
KEEP THESE HOUSEHOLDS WHOLE,
ABLE TO PAY THEIR BILLS THROUGH
THIS VERY SPECIAL QUARTER AND
THE GOOD SIDE OF IT IS WE’RE
BORROWING MORE BUT WE’RE
BORROWING AT LOW INTEREST RATES,
SO THAT’S VERY HELPFUL IN THIS
ENVIRONMENT.
ENVIRONMENT. AND WE WILL HAVE TO ADDRESS THE
SPENDING BUT WE CAN’T WORRY
ABOUT THAT RIGHT NOW.
MARIA: ALL RIGHT.
SO YOU THINK WE’LL BE BACK IN
BALANCE, WE’LL SEE A BOOM
QUARTER IN THE FOURTH QUARTER
AND THEN IN 2021 YOU’RE
EXPECTING GROWTH, SIR?
>> OH, YEAH.
I THINK THE -- THAT’S THE PLAN.
I THINK EVERY CHANCE THAT WE CAN
EXECUTE THIS, BUT A LOT OF THIS
IS ABOUT EXECUTION RIGHT NOW,
JUST SEEING THE DAYS AHEAD HERE,
SETTING UP THESE PROGRAMS,
MAKING SURE PEOPLE KNOW HOW TO
GET THE RELIEF THAT THEY NEED
DURING THIS SPECIAL QUARTER,
MAKING SURE THAT HOUSEHOLDS CAN
GET UNEMPLOYMENT INSURANCE, THAT
BUSINESSES CAN GET THESE
IMPORTANT LOANS AND POSSIBLY
LOANS FOREGIVEN FOR THIS SPECIAL
QUARTER, SO HOPEFULLY ALL THAT
WORKS BUT, BOY, IT’S A BIG
COUNTRY AND BEING ABLE TO GET
ALL THOSE FUNDS OUT TO THE
APPROPRIATE PEOPLE RIGHT AWAY IS
A TOUGH TASK.
SO WE’RE WORKING HARD ON THAT
WITH THE TREASURY RIGHT NOW.
MARIA: JAMES, THANKS VERY MUCH
FOR JOINING US.
I KNOW YOU AND YOUR COLLEAGUES
ARE ALL WORKING HARD AND THE
COUNTRY APPRECIATES IT.
THANKS FOR YOUR LEADERSHIP.
JAMES BULLARD.
JAMES BULLARD. WE’LL SEE YOU SOON.