White House economic adviser Larry Kudlow predicted Monday that the coronavirus outbreak is a short term economic hurdle — a matter of "weeks and months," he said — rather than a harbinger of longer-term strife in the U.S. economy.
The remarks from Kudlow, the White House National Economic Council director, came amid growing concern about the spread of the coronavrius pandemic and its impact on global economies. Millions of people in the U.S. and beyond have begun to engage in so-called "social distancing" — avoiding large groups and making as little contact as possible with others in order to stop the coronavirus' spread.
Kudlow touted the administration's ability to work with the private sector, including big retailers and drugstores — steps he said will help with coronavirus testing across the country. But he also acknowledged that these companies may need assistance if they face with cash flow shortages during the outbreak.
Kudlow also said the administration has $400 billion of the $800 billion in fiscal relief it's working toward. The other half, he said, would primarily come from Trump's proposed payroll holiday tax, though he said he is "reluctant to price it out."
"We're working with Congress to do it but much of it can be done through executive authorities," Kudlow said. "And again, to quote the president, we will use whatever federal powers are available.”
President Donald Trump was unfazed by the recent stock market plunges and remains optimistic about the future of the U.S. economy, Kudlow said, adding that the president was "very calm about the market."
But Trump's tone was more somber than normal during Monday's White House briefing, where he said the outbreak might linger into July or August. When asked if the economy is headed into a recession, he said "it may be" before reverting to a more optimistic outlook.
"We're not thinking in terms of recession. We are thinking in terms of the virus. I think there is a tremendous pent-up demand, both in terms of the stock market and in terms of the economy. And once this goes away, once it goes through and we are done with it, I think you're going to see a tremendous surge," the president said.
Other economists, including the former chairman of Trump's White House Council of Economic Advisers, painted a significantly less rosy picture.
“I think that the odds of a global recession are close to 100 percent right now,” said Kevin Hassett, Donald Trump's former chairman of the Council of Economic Advisers, on CNN on Monday. “I think in the U.S., we’re going to have a very terrible second quarter. At The Lindsey Group, we just ran the numbers carefully over the weekend, and we think the second quarter will be about minus 5 percent."
Hassett said “millions and millions of people” are typically hired and fired each month, but because hires will remain close to zero and the number of firings will be constant, “you’re looking at one of the biggest negative jobs numbers that we’ve ever seen.”
“We think the jobs number in early April might be as much as minus a million or so because nobody is going to be hired next week,” Hassett said.
The spread of coronavirus across the world has rocked the global economy. As governments worldwide issued stricter containment measures, closing schools, bars and restaurants, central banks moved to intervene in the markets.
The Federal Reserve on Sunday moved to soothe the markets — slashing interest rates to essentially zero and launching a $700 billion quantitative easing program to protect the U.S. economy from the effects of the virus.
But U.S. stocks nonetheless plunged on Monday as investors reacted to the emergency policy measures. The S&P 500 declined 8 percent after trading began at 9:30 a.m., resulting in a mandatory 15-minute pause — the third in two weeks and only the fourth in Wall Street history.
“I think that’s why the market is responding the way it is right now to the Federal Reserve’s action,” Hassett said. “I think the market understands that its Fed, with its hundreds of economists, has really started to think about the numbers coming in and is really sure they’ll be terrible, which is why they did this extraordinary action.”
If lawmakers "get ahead of the curve on this," Hassett said it's possible that some of the negative numbers will reverse themselves. He said while the House is right to propose measures to help people who can't work during the outbreak, other actions, like Trump's proposed payroll tax holiday, should be considered.
"The way to think about it is that, you know, businesses are going to have to pay wages for people even though there aren't a lot of sales because everybody is staying home," Hassett said. "So if you have a payroll tax holiday, basically what you're doing is giving a big chunk of payroll both to workers and firms to help get them see through three or four months that are going to be super negative."
Hassett continued: "If Congress doesn't understand that we're looking at maybe one of the worst jobs numbers we've ever seen, and we're looking at a negative GDP number in the second quarter that's really large, if they don't understand that, then they cannot do a stimulus for sure. But they need to understand that and they need to give a big stimulus right now. If they have a better idea than a payroll tax holiday, then they should pass that, but if they don't take a big action, then that minus 5 percent will to spread into the third quarter and you're going to look at a recession. "
Meridith McGraw contributed to this report.