Yahoo Finance's Brian Cheung breaks down the latest from the Federal Reserve, and what St. Louis Fed Chief James Bullard has said about his outlook for the economy moving forward.

Video Transcript

MYLES UDLAND: Let's take a check on what's happening in Fed land. Brian Cheung joins us now for the latest there. And Brian, I know you spoke to St. Louis Fed president, Jim Bullard.

Fed watchers will know, he is one of the most outspoken of the Fed officials that we hear from. And we hear from him quite often. And coming out here with some pretty stark forecasts about where he thinks the economy is headed in the second quarter.

BRIAN CHEUNG: Yeah, Myles, Jim Bullard spoke with a number of reporters this morning. He forecast a 30% unemployment rate, which would only cover the Q2 numbers. So not necessarily 30% unemployment for the rest of the year. But he did also forecast that based on the health response, if there were to be an appropriate one in his view, we should expect to see GDP be lowered by 50%.

Now, those are all pretty dramatic figures. But he's saying, don't necessarily freak out because of that. We do know that this is going to be a deep, and hopefully temporary, response to the coronavirus. But essentially, the economy needs to do this in order to make sure that the health response is adequate, so that people will be healthy and able to go back to work. If in the best case scenario, there were to be some sort of transitory period in third quarter.

One other thing that he mentioned, because of the timing of this, is that he is watching very closely the stimulus bill that's going through on Capitol Hill. He said we prefer to refer to it as more of a relief bill than a stimulus bill. Because the idea is not to pull consumption forward, the idea is just to make sure the economy can get somewhere close to where it was before we hit this coronavirus period, once we get out of all this.

He said, one thing he's watching is to what degree Congress will allow the Federal Reserve to establish that Main Street lending facility that it mentioned on Monday. Keep in mind, the Fed announced it, didn't announce any details of it. Mostly because that was aspirational, to say hey, we want to see if Congress is going to give us something to make this happen. What we do know, so far, is, apparently, it's going to be $454 billion. So we'll see what the Fed does with that, assuming everything is OK with that bill and that it does ultimately get passed.

MYLES UDLAND: Well, so he mentioned that, you know, they basically-- and we talked about this too, when the Fed came out with these measures. You know, we've both said, hey, this is the Fed telling Congress, please do this, so that-- you know, do this, so we can do that.

Did he outline any more of how exactly the Fed might try to use that Main Street facility? Which, I think at this, point we can agree is the most innovative thing they've done? Maybe other people will look at commercial paper, or the munis, or other things. But it seems like that Main Street facility they announced, in part with treasury, was, kind of, the newest innovation here that the Fed has taken on during the coronavirus crisis.

BRIAN CHEUNG: It is. And even former Fed Chair, Ben Bernanke, who was speaking on CNBC this morning and saying, it sounds like, to him, it's going to be some sort of facility where the Federal Reserve would be able to offer loans directly to Main Street businesses. And again, the mechanics of all this are unsure, because we don't have the draft bill of the text yet. And we also don't necessarily have any sort of clarity from the Federal Reserve on their end over how they would use their section 13-3 authority to actually put this thing together.

But regardless, as you mentioned, they've been really creative with the tools that they've used. And St. Louis Fed President, James Bullard, saying this morning that, quote, "Everything's on the table, we could do more." He wasn't really more specific about what that means. But it shows that the Federal Reserve has a lot of other tricks up its sleeve, if it wanted to, to address things on the monetary policy side of things.

Now, you could argue to what degree you want to do that. Because it does create that moral hazard of, well, maybe Congress is dragging their feet, because they're saying, oh, well, monetary policy can just do all these things in the interim, while we try to work through a package. The Federal Reserve has already unleashed a number of tools, as you mentioned, on money markets, on corporate debt, on municipal debt. They have gotten creative with those tools in a way that they did not deploy them in 2008.

So St. Louis Fed President, James Bullard, saying, look, we're not out of ammunition yet. And anyone that says so is wrong. We have plenty of other ways that we can get creative here. But again, we want to see what Congress is doing first before we move forward on a mainstream lending facility or what have you.

- And Brian, of course, someone who really understands the kinds of ammunition out there, and created a lot of those tools, is Ben Bernanke. You mentioned some of the comments he said earlier on CNBC. But I want to point out a quote that he said that-- And I want to get your thoughts on it. He said, "This is a very different animal than the Great Depression. The Great Depression lasted for 12 years, and it came from human problems."

And Brian, I kind of take issue with that, because this feels as much of a human crisis as any. And I'm curious to see what the tailwinds are, as we think about even the recovery that people seem to be so quick to be discussing. Even though we're in the thick of it right now.

BRIAN CHEUNG: Yeah, I think that speaks to the larger argument, which is whether or not the coronavirus is something where we should expect a V shape recovery, right? The idea that maybe we could recover quite quickly out of the coronavirus concerns here. And Ben Bernanke's comments, that you point to, where he says, this is more like a snow storm than it was like the Great Depression, is one view that shows he does think it's possible to get a V shaped recovery. That, assuming we can get the public health response in the right way, which a lot of people argue about, maybe we can get back to exactly where we were at Q4, Q1, before we hit all of this.

So the question here is really going to be, how long does this persist? Because we already know the mechanics of how all of this works, right? Businesses are shut down, and the longer that they'll be shut down the more unlikely it's going to be that those businesses will a, survive, and then b, be able to re-employ all those people that will be laid off.

So when we talk about unemployment, for example, the longer that we stall a public response to this, the more likely it's going to be that we cannot get a V shaped recovery. Because those businesses that employ such a large base of Americans will no longer be there anymore. And I think that's really the concern here.

We were talking to Jason Furman, he was formerly the Council of Economic Advisors in a previous administration. He was saying, I don't necessarily see that a V shaped recovery is likely, at this point. Because we've been dragging our feet for so long. Even the stimulus that we're proposing on Capitol Hill right now of $6 trillion might be too late, might be too small, because it's too late. And I think those are all questions that speak to the larger aspect here, which is that, yeah, it might not look like the Great Depression, but the longer we stall on it, the more it might start to resemble that.