Calculated Risk: ‘Pandemic: A Slowdown or a Recession?’

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Bill McBride of world-famous Calculated Risk Blog is sharing more of his very well informed and insightful thoughts on the potential economic impacts of the coronavirus and the odds of it ending in recession – and maybe a severe one. Calculated Risk:

Back in 2013, I wrote “Predicting the Next Recession”. Since then, I’ve updated that post several times, most recently last September.

In that post I noted that the next recession could be caused by …

An exogenous event such as a pandemic, significant military conflict, disruption of energy supplies for any reason, a major natural disaster (meteor strike, super volcano, etc), and a number of other low probability reasons. All of these events are possible, but they are unpredictable …”
emphasis added

Now that a pandemic is here, the question is: Will the economy just slow down, or will there be a recession?

A recession or a slowdown depends on the severity of the pandemic and the actions of the Federal Government (both on coordinating the response and fiscal policy). The Federal Reserve cut rates 50 bps this morning, but they can only do so much.

The severity of the pandemic is unpredictable, although looking at China – and now South Korea – the economic disruptions could be huge.

The actions of the Chinese government, and the US actions to limit travel from China, bought policymakers in the US time to plan for the pandemic. Unfortunately it appears US policymakers were caught flat-footed […]

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