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(Bloomberg) -- Treasury Secretary Steven Mnuchin raised the possibility with Republican senators that U.S. unemployment could rise to 20% without government intervention because of the impact of the coronavirus, according to people familiar with the matter.
Mnuchin discussed the scenario with the lawmakers on Tuesday as he proposed an economic stimulus of $1 trillion or more.
He told the senators that he believes the economic fallout from the coronavirus is potentially worse than the 2008 financial crisis.
Extraordinarily high unemployment, he said, is a possibility if lawmakers don’t swiftly provide financial assistance to wage workers and small- and medium-sized businesses.
“During the meeting with Senate Republicans today, Secretary Mnuchin used several mathematical examples for illustrative purposes, but he never implied this would be the case,” Treasury Department spokeswoman Monica Crowley said.
For many lawmakers, plunging stock prices and an abrupt drop-off of consumer spending during a time of social distancing has crystallized the need for Congress to act quickly and boldly. The U.S. Federal Reserve has already used much of its toolbox to shore up the economy -- bringing rates close to zero and announcing crisis-era lending programs -- leaving policy makers to ease the extent of the damage with fiscal stimulus.
Dramatic Economic Turn
The unemployment scenario raised by Mnuchin would be a dramatic turn from February, when the U.S. jobless rate fell back to a half-century low of 3.5% as average hourly earnings climbed a steady 3% from a year earlier.
But since then, the coronavirus has continued to spread in the U.S. On Tuesday, there had been more than 6,200 cases in the country and 105 deaths, according to a tally by Johns Hopkins University.
A surge in unemployment of the scope Mnuchin described is greater than what has so far been forecast by bank economists -- though economists continue to stress the uncertainty of any prediction at this time. On Tuesday, Wells Fargo & Co. updated its forecast to show the unemployment rate would reach 5.3% in the fourth quarter.
The Trump administration is discussing a stimulus plan that could include direct payments of $1,000 or more to Americans.
Mnuchin pitched $250 billion in checks to be sent at the end of April with a second set of checks totaling $500 billion four weeks later if there’s still a national emergency, according to a person familiar with the matter.
(Adds Wells Fargo forecast in ninth paragraph)
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