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A prolonged shutdown of the U.S. economy could trigger a second Great Depression, according to St. Louis Federal Reserve Bank President James Bullard, who said the nation needs to adapt to the new risk in the era of the coronavirus pandemic.
"What you're risking here is that this morphs into a financial crisis and makes this so much worse," Bullard told FOX Business' Edward Lawrence. "And then the outside morphs into a depression scenario, in which health care outcomes, as well as economic outcomes, would be terrible. You don't want to play with fire too much here."
In the nine weeks since the economy came to a grinding halt, 38.6 million Americans have lost their jobs, a rate unseen since the Depression. In February, before the virus gained a foothold in the U.S., unemployment was at a half-century low of 3.5 percent.
Bullard acknowledged that economic growth is likely the "worst it's ever been," noting that a swath of Wall Street economists are predicting a 40 percent contraction in the second quarter. But he said the U.S. has likely passed the initial shock of the pandemic, saying it's time to "adapt to the new risks that are out there."
"Very likely behind the worst quarter will be the best quarter of all time from a growth perspective, because logically, businesses will open back up," he said. "This shock is very different from other ones we've seen."
Bullard has struck a different tone of the economy's eventual recovery from the virus than Fed Chairman Jerome Powell, who warned last week the process could stretch through the end of 2021, and may hinge on the completion of a successful vaccine.
Powell said it may not return to pre-crisis levels until a vaccine is delivered as certain sectors like sporting events and theaters struggle to adapt to strict social distancing guidelines.
"I would say though we're not going to get back to where we were quickly. We won't get back to where we were by the end of the year. That's unlikely to happen," the U.S. central bank chief said during a "60 Minutes" interview that aired last Sunday. "For the economy to fully recover, people will have to be fully confident. And that may have to await the arrival of a vaccine."
The Fed responded to the crisis by taking a range of extraordinary actions to support the economy, including slashing interest rates to near-zero, purchasing an unlimited amount of Treasurys (a practice known as quantitative easing) and launching crisis-era lending facilities to ensure that credit flows to households and businesses. It has also said it will buy corporate bonds and lend to states and cities.