In mid-May, The Right Place hosted the first webinar in its new monthly series, Navigate 2020. Guest speaker Rick Mattoon, senior economist and economic advisor for the Federal Reserve Bank of Chicago, provided insight and answered questions surrounding the anticipated economic recovery in the U.S. following the Novel Coronavirus (COVID-19) pandemic.
This recession, Mattoon said, is unlike any other the U.S. has seen before. That factor makes modeling far more difficult than in recessions past, which is why there is so much variation among economists on what ‘shape’ the recovery will take.
Even within the Federal Reserve Bank's own forecast exists a great deal of variation between ‘best,’ ‘median,’ and ‘worst’ case scenarios of recovery. While median and best-case projections expect a recovery to happen in Q3 2020, worst-case projections anticipate a much milder, shallow recovery through the end of the year.
A key variant in these projections is the consumer. During the great recession, economist theorized that consumers would spend and take on debt when interest rates dropped steeply, but human behavior shifted. Consumers became far more risk averse, choosing to increase savings instead – a trend that is reoccurring in the wake of the pandemic. Once the ‘new normal’ begins to set in, the way consumers choose to react will be a significant determining factor in which projection prevails.
The course that the U.S. economy takes in the coming months also depends heavily on how we are able to respond to the virus on a global scale. If you want to control the economic recovery, you have to control the virus, said Mattoon.
- The best-case scenario would be the development of an effective vaccine or herd immunity by fall, allowing people to regain confidence and return to a pre-COVID-19 lifestyle.
- Intermediate would involve a vaccine still being underway, but an effective treatment protocol for COVID-19 is proven and implemented in new cases.
- The least-favorable circumstance would involve neither of those things, making social distancing the only effective way to combat the virus and preventing economic activity from resuming.