U.S. Treasury Secretary Steven Mnuchin clarified on his statement that unemployment could hit 20% without a coronavirus response, and he also pledged ample financial liquidity to American businesses coping with the outbreak.
On Tuesday, he told senators that U.S. unemployment could spike to 20% if no actions were taken to ease the crisis, a source familiar with the closed door meeting said.
He clarified those remarks Wednesday, telling CNBC: “I didn’t in any way say, ‘I think we’re going to have that.’ If we follow the president’s plan we will not have it.”
“Unemployment of 20% is almost certain,” Carr said. “Less than a third of Americans can work from home. If half of the rest are laid off, self-quarantine or just stay home out of concern, unemployment will be more than 30%.”
Mnuchin also said the Treasury would continue to take actions to ensure liquidity, after he approved Federal Reserve backstop facilities for the $1 trillion commercial paper market and for primary dealers.
“We saw issues in those markets,” Mnuchin said. “The Fed reacted quickly, we reacted quickly, and we’re going to continue to make sure we react quickly.”
While the Fed is responding quickly, Carr doesn’t think it can do that much because the economy is driven by consumers.
“The Fed really is doing all they can. They just can’t do very much,” Carr said. “This demonstrates that fundamentals don’t matter in the economy or the stock market. All that matters is consumer confidence. Coronavirus destroyed confidence in the economy, in the government’s ability to maintain the economy and in institutions we can’t understand yet.”
Carr, who also teaches quantitative technical analysis at New York Institute of Finance, alluded to what former President Franklin Delano Roosevelt faced in the 1930s.
“This is the situation FDR faced in 1933 when he said ‘all we have to fear is fear itself.’ That’s where we are.”
Capital will soon be injected into the Treasury’s Exchange Stabilization Fund, and the Treasury is investing $10 billion from the $93.7 billion fund into the Fed’s new commercial paper credit facility that will buy highly rated commercial paper.
Carr believes the “Treasury holds the keys to success,” and by working with Congress a lot can be achieved for the economy and the consumer.
“Munchin needs to work with Congress to flood the economy with short-term funds,” Carr said. “If policy makers use this as an excuse to create long-term programs, they will hurt confidence even more and doom the recovery.
“It’s a balancing act but Munchin is prepared for this and should be able to put together the right programs.”
Mnuchin also mentioned that the Internal Revenue Service would soon announce a delay in the April 15 tax filing deadline that the Treasury announced Tuesday.
Mnuchin clarified that taxes would still need to be filed by the original date, but that individuals, businesses and others that qualify for the tax relief could hold off on paying their dues until July 15 once the extension is in place.
Reuters contributed to this report.