June 17, 2020 / 8:02 PM / 20 days ago

Fed's Mester says rebound from likely record economic decline depends on containing coronavirus

June 17 (Reuters) - The U.S. economy could face a record decline in the second quarter and the strength of the recovery will largely depend on the success of efforts being made to limit the spread of the coronavirus, Cleveland Federal Reserve Bank President Loretta Mester said on Wednesday.

Private-sector forecasts call for the gross domestic product in the second quarter to decline by an annual rate of 25% to 40%, Mester said in remarks prepared for a virtual forum. “Second-quarter growth could be the largest quarterly decline on record,” she said.

Mester noted that unemployment remains at historically high levels despite the improvement seen in May, when the economy added 2.5 million jobs. She said the hit to the labor market may be worse than the numbers suggest, because many people left the work force and other workers had their hours cut.

The policymaker said she expects inflation to decline this year because of the sharp drop in demand caused by pandemic-related shutdowns.

The strength of the recovery will depend on the future spread of the virus and if consumers feel comfortable going out in public, she said.

“If the number of cases of the virus is not well controlled and the health-care system gets overwhelmed, then the economic outcomes I have discussed could turn out to be much more dire,” Mester said, adding that people may choose to stay home and limit their activity even if states do not put in place another wave of restrictions. (Reporting by Jonnelle Marte; Editing by Leslie Adler)

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