Yahoo Finance’s Alexis Christoforous, Brian Sozzi and Brian Cheung discuss how the Federal Reserve might react to the March jobs report.

Video Transcript

ALEXIS CHRISTOFOROUS: Welcome back to "Yahoo Finance Live." We knew it was going to be ugly, but it's even worse than expected. The unemployment rate rising to 4.4% in the month of March. That's up from 3 and 1/2% the prior month, and the economy shed more than 700,000 jobs. These numbers do not reflect the past two weeks when about 10 million Americans filed for unemployment benefits.

What does this all mean for the Federal Reserve? I'm sure policymakers are trying to figure it out too. Let's head over to Brian Cheung, our Fed correspondent, to find out more. If you try to get inside the head of Jay Powell right now, what do you think he's thinking after this jobs report, Brian?

BRIAN CHEUNG: Well, Alexis, up until this jobs report, the Federal Reserve was mostly concerned with interest-rate policy and trying to lever what it was seeing in the labor market depending on where it saw the neutral rate of interest rates.

Now the problem is that the last time that we got a jobs report-- which, as you recall, was the first week of March-- that was for a February jobs report, and at that time, the Federal Reserve had been far from zero-- not that far from zero, but it was not at zero. And since that point in time, we've seen those two emergency meetings where the Federal Reserve did slash to zero and then restarted quantitative easing. So they don't have those levers anymore, but they have a number of other ammunition bullets that they've been using, namely those liquidity facilities to try to backstop issues in US Treasury, US dollar markets.

But regardless, what we know now is that because the report was worse than maybe those who were expecting it, the acceleration of a lot of those Main Street business closures is probably worse than the Federal Reserve thought. When we look at the report-- and you were talking about this in the last block-- the decline that we saw in food services and bars of minus 417,000 just for the month of March, that employment decline actually offset the gains that we saw in the previous two years.

Keep in mind, during that period in time we were seeing what was one of the best labor markets in US history with the headline U3 unemployment number dipping down to as low as 3.5%. That was a 50-year low, and the Federal Reserve was declaring essentially mission accomplished on its maximum-employment mandate. All of that work now out of the window here, so the Federal Reserve has really got to think about what it can do with the Main Street business lending facility to try to support a lot of those small businesses that are really hemorrhaging a lot of these jobs.

So something worth mentioning, though, is that that 400,000-- over 400,000 job loss, that's only a small bit, a small portion of the total pie here. Keep in mind, 12.3 million people were employed by food services and drinking places before this report. So there's a lot more businesses that can close in the future jobs reports, and that month of April, which we will only get the data in May, that's going to be a huge tell for exactly how hard the Main Street businesses have been impacted and what the Fed needs to do there.

BRIAN SOZZI: You know, Brian, is it somewhat surprising? This week we heard a lot of Fed governors-- Neel Kashkari really sound the alarm bell on the economy not to suggest maybe that we're a garden-variety recession, that things could get pretty bad.

BRIAN CHEUNG: Yeah. Well, I mean, basically every Fed speaker that's been chatting this week has been saying if we're not already in recession, then it's going to come soon. That's what San Francisco Fed president Mary Daly told us at Yahoo Finance on Tuesday. The expectation here is that this is going to be a pretty vicious recession, and it's going to be a very precipitous fall like we've never really seen before. The question is going to be how quickly can the economy come back online?

We were talking about this earlier in the show as well. This is an engineered shutdown. It should not be a surprise that these businesses are closing down and that this many people are being laid off, but the question is how quickly can they come back to work?

That's where the Federal Reserve comes into play. They've set interest-rate policy to zero, and they're trying to provide those liquidity backstops so that hopefully when the health response is adequate, people will have the avenues to find employers or to find at least some sort of bridge while they're looking for jobs to then get back plugged into the labor force-- that hopefully we can get something resembling the labor market before the coronavirus hit.