Yellen Says Unemployment 'Probably' Up To 12%-13%, Favors Banks Suspending Buybacks

Jayson Derrick

An unofficial unemployment reading, if taken right now, would "probably" come in at 12% to 13%, ex-Federal Reserve chair Janet Yellen said Monday on CNBC.

Unemployment Trending Higher

If unemployment is standing at 12% to 13% right now this figure would only worsen over the coming days, Yellen said. The toll continues to rise by the day and how much worse the jobs market will get is dependent on how quickly America can get back to business.

Other indicators to gauge the strength of the economy, such as credit card data, signal a "dramatic" decline in economic activity. Credit card data alone point to a second quarter GDP decline of 30% although Yellen said she has "seen far higher numbers" off other data.

Related Link: Bernanke On How Coronavirus Differs From The 2008 Economic Crisis

What A Recovery Looks Like

A "V-shape" economic recovery is the "best case scenario" and current expectation calls for a return towards work as usual by the summer months, Yellen said. While a quick and swift economic recovery is possible, it's also possible the recovery will "look worse."

"It really depends on my mind on just how much damage is done during the time that the economy is shut down in the way it is now," Yellen said.

Banking System

Compared to the prior economic crisis, the banking system as a whole is flush with superior liquidity and capitalized. But Yellen said she is "in favor" of asking banks to suspend dividends and stock buybacks. Banks tend to be reluctant to cut back on shareholder returns as doing so may signal they are "vulnerable" to market headwinds.

The relevant regulatory authorities could ask the banks to suspend dividends and buybacks ahead of an era of economic uncertainty. This would represent a "different situation" as such a request would help banks meet the credit needs of the economy.

What More Can The Fed Do

The Federal Reserve has acted quickly and aggressively to support the economy and "pulled out all the stops," she said. The recent passing of the CARES act now implies the government has all the resources and tools to offer "massive support" to keep credit flowing.

Janet Yellen speaks during an appearance at the University of Michigan. Photo by Dustin Blitchok.

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