UBS Chief U.S. Economist Seth Carpenter joins Yahoo Finance’s Seana Smith to discuss the Federal Reserve minutes and the impact the coronavirus is having on the U.S. economy.

Video Transcript

SEANA SMITH: The Fed minutes-- they were released at the top of the hour. Some of the headlines here sticking out to us at Yahoo Finance. They showed alarm over the COVID-19 disruptions to the economy. Also, the fact that rates will be held at zero until the economy weathers this virus. For more on this, I want to bring in Seth Carpenter, UBS chief US economist. And Seth, thanks so much for calling in and joining the show this afternoon. What we've seen is interesting--

SETH CARPENTER: My pleasure.

SEANA SMITH: --because, obviously, it was different than what we are typically used to, because this included the two emergency meetings in the month of March. What stood out to you? Because to me, one of the things that was a little bit alarming was the fact that they were saying that there was an extremely large degree of uncertainty here, just in terms of what we could expect in their outlook.

SETH CARPENTER: Absolutely. So I mean, I think we want to keep in mind just how long ago this meeting was held, how long ago these meetings pertained, just how fast the world is changing. This was from March 15, which is only three weeks ago, but feels like a lifetime ago. You'll remember that only a week and a half or so before that, the vice chair of the board said it was too soon to even speculate as to what might be going on with corona. So the world has moved very, very quickly.

I think a few things stand out there. One, they didn't talk about the fact that they canceled their summary of economic projections. Clearly, they're going to have to write down a recession, and that would have felt super uncomfortable. And they didn't have any confidence in how to forecast. So I think the fact that they didn't even talk about that decision in the minutes was pretty telling.

I think one thing they're going to have to come back and revisit, and it does show how long ago this meeting was-- that they're going to keep interest rates at zero until they feel like they've weathered the storm. Well, I think once we feel like we've weathered it, the Fed is going to look around and say, what happened to inflation? What happened to that expansion we were going on? What happened to that concern everyone had about being able to run the economy hot and get inflation up? That's going to be gone.

And so they're going to actually, in my view, be at their lower bound for much, much longer than simply, quote, "weathering the current storm."

SEANA SMITH: Yeah, so I mean, it's interesting when we try to compare what we're seeing now to what we saw just over 10 years ago back in 2007 and 2008. Obviously, it's extremely different circumstances, what we're dealing with now, because at the core of it, this is really a health crisis. But do you think this is at all any worse than what we saw back 11 or 12 years ago?

SETH CARPENTER: Absolutely. So I was at the Fed during the financial crisis. I was one of the people helping design all of these new lending facilities. And this does feel very different.

So at the time, in 2007, 2008, 2009, you had the financial system imploding, causing a massive threat to the real side of the economy. Now it's the opposite. There is this virus, this public health threat, that is causing government officials to shut down huge parts of the economy. And that lack of traction about what it actually means for the real economy-- that's causing financial markets to go into a tailspin. So the causality is reversed. And I think ultimately, the solution to it is going to be very, very different.

SEANA SMITH: Seth, when we talk about some of the numbers that have shown some of the disruption that we've seen over the last month, at the labor market, obviously that 700, 1,000 jobs lost in March. Now, that data only goes through March 12, so we're expecting that number-- it could get significantly worse. But we've already seen some of that in terms of the jobless claims numbers over the past two weeks, with the new number out tomorrow. But from your perspective, how high do you think unemployment can climb at this point?

SETH CARPENTER: So in our forecast, it gets up to almost 15%. And that's as soon as, basically, this quarter, the second quarter. It looks like everything is happening extraordinarily quickly with the initial claims data. In just two weeks, 10 million Americans filed for unemployment insurance. That's just a shocking, shocking number.

I will say-- so we think it's going to get high. We think it gets to almost 15% in Q2. I think one ray of sunshine-- and those are a bit hard to come by these days-- is this Payroll Protection Plan that the Congress authorized, giving almost $350 billion. And that seems like that is actually getting a lot of take-up through the Small Business Administration, and that seems like it could actually help businesses be able to hold onto more workers. Maybe not right away, and I don't think it's going to keep the unemployment rate from jumping substantially, but over the next few months, that actually is a ray of sunshine.

SEANA SMITH: Seth, are you at all alarmed just in terms of the headlines that we got in there about the Payroll Protection Plan-- some businesses were having trouble applying for their loans-- that there could be some backlog there?

SETH CARPENTER: So I was not alarmed, but I think a lot of that has to do with my starting point of view. So I was a Washington, DC, bureaucrat for almost two decades. I was longtime at the Fed. I was a political appointee at the Treasury Department. These sorts of programs are hard. The Small Business Administration was not constructed to try to send out this kind of program. I'm actually positively surprised at just how much they've been able to process, as opposed to being alarmed that they aren't doing more.

SEANA SMITH: That's interesting, very different take on what we've been hearing from a lot of people out there. Seth, when it comes to the sustained damage that we can see here in the US, how that stacks up to what we could see over in Europe, and then comparing that to the emerging markets, who do you think is most at risk here for some of that sustained damage? Is it emerging markets?

SETH CARPENTER: So I think clearly, emerging markets are in a very difficult situation. When you have economies where they don't have the resources to be able to try to keep people in their jobs, you've got a real difficult situation. I think part of the logic of this SBA program-- if you look at Denmark, what they've been doing, trying to make sure businesses hold onto their workers, even if the government foots the bill-- the purpose of that is to be able to allow the economy to restart with as little friction as possible once the medical emergency is gone.

In EM countries, I suspect there's much, much, much less scope to effect those sorts of changes. And as a result, I suspect they'll have a lot harder time getting things going again.

SEANA SMITH: All right. Seth Carpenter, UBS chief US economist, thanks so much for calling in today.

SETH CARPENTER: Thanks for having me.