What do you think? Leave a respectful comment.

Janet Yellen on this ‘devastating’ economic crisis and the government’s response

As unemployment claims in the U.S. mount due to business closures related to the novel coronavirus, former Federal Reserve Chair Janet Yellen offered her perspective on the direction the economy may be heading in the coming months, and warned that job losses could continue to worsen. 

“This is completely unprecedented,” said Yellen in an interview with PBS NewsHour anchor and managing editor Judy Woodruff on Thursday. “It’s a devastating blow, we’ve never seen anything like it. 

Yellen noted that job losses continued to multiply last week with more than 6.6 million Americans filing for unemployment insurance, close to the record number of claims filed the week prior. This brings the total number of Americans who have lost their jobs in recent weeks to 17 million. She predicted the unemployment rate will reach levels not seen since the Great Depression. 

But unlike the Depression, Yellen notes that in the current downturn, there are no underlying problems with the economy. This recession was driven by a public health crisis, and the economy was relatively healthy just a few months ago. “This is a terrible situation. But the hope is that if we can get the pandemic under control and deal with the public health crisis, that the economy will recover much more speedily than it did from any past downturn,” the former Fed chair said. 

Despite issues with the rollout of these expansive programs, Yellen remains optimistic that relief will come to Americans who need it. 

More highlights from the interview: 

On the government’s efforts to keep people afloat: “It’s simply essential to support households and businesses through an incredibly difficult period in which they’re facing losses of jobs and incomes. They’re struggling to meet everyday expenses for food and rent and utilities. And this is due to no fault of their own and no problems with the job market,” Yellen said. 

Asked about the government’s response to the economic downturn, she said she was impressed by what the fiscal authorities and Federal Reserve have done thus far to keep the economy afloat. 

Congress passed a $2.2 trillion economic stimulus bill at the end of March that extends unemployment benefits to more workers and provides loans for small businesses to keep their employees on payroll. Most Americans will receive a direct payment of $1,200 from the stimulus, as well. Lawmakers are pushing to pass another spending package to provide additional funding to small businesses, hospitals, and state and local governments, in particular. 

Yellen said the stimulus would provide “very meaningful support” to Americans, particularly because it broadens eligibility requirements for unemployment insurance and allocates an additional $600 per week to those who qualify. She noted that if shutdowns related to the coronavirus continue, Congress will likely have to pass another economic rescue package. Already, the fiscal response is slightly larger than the one lawmakers negotiated in response to the 2008 recession. 

The Federal Reserve Bank announced on Thursday that it would expand lending programs to aid small and mid-size businesses, as well as state and local governments, by $2.3 trillion. This exceeds the entire scope of its response to the 2008 financial collapse. Yellen called the Fed’s response “utterly heroic,” adding, “My hat is off to my successor, chair Powell and his colleagues, for what they have announced and the creativity of what they’re doing.”

On the rollout of financial relief to Americans: Since millions of Americans began applying for unemployment, state websites have been overwhelmed with the demand, causing delays, glitches and error messages. Yellen acknowledged there have been procedural problems with the rollout of the expanded benefits: “I know how frustrating it must be. Someone’s been laid off. They need to buy groceries and pay the rent and they can’t get through to the unemployment office.”

Nevertheless, the former Fed chair expressed optimism that “money should be flowing” to Americans in the coming weeks. 

Yellen also acknowledged that there have been similar issues with the rollout of loans that were promised to small businesses as part of the economic stimulus in the wake of the pandemic. Banks have been overloaded with requests, and loans were held up for some business owners when the Small Business Administration’s processing system stopped working earlier this week. 

“There are start-up problems with very big programs,” Yellen said. “The banks are absolutely swamped. The program is probably going to require further appropriations and it’s probably going to be pretty frustrating to get the money in hand, but it’s there and it’s coming. And it should be available to a wide range of businesses.”  

 

Read the Full Transcript

  • Judy Woodruff:

    The Federal Reserve announced today that it will push some $2.3 trillion in loans to small and mid-sized businesses, as well as to cities and states.

    That move, together with other programs, mean that the Fed's current actions exceed the entire scope of its response to the 2008 financial collapse.

    To take a broad look at the economic hardship Americans are feeling and the Federal Reserves response, we're joined by Janet Yellen. She chaired the Federal Reserve Board from 2014 to 2018. She is now a distinguished fellow at the Brookings Institution.

    Janet Yellen, thank you very much for joining us.

    You have — we — you have seen these stories. You have heard people's stories. We know the statistics. How does this compare to anything you have ever seen, known or studied before?

  • Janet Yellen:

    Well, thanks for having me, Judy.

    This is completely unprecedented in U.S. history. You know, we got data this morning on new claims for employment insurance. Over the last three weeks, almost 17 million Americans have lost their jobs. That's more than 10 percent of the work force in three weeks.

    It's a devastating blow. We have never seen anything like it. The unemployment rate looks like it's going to skyrocket to levels we haven't seen since the Great Depression. And they will probably exceed, probably already do, what we had during the great financial crisis.

    But this is a health-driven downturn in the economy. Very fortunately, we started with an economy that was healthy before it was hit.

  • Judy Woodruff:

    Right.

  • Janet Yellen:

    The banks were in good shape. The financial system was sound. Americans, at least overall, on average, had relatively low debt burdens.

    So, this is a terrible situation, but the hope is that, if we can get the pandemic under control, deal with the public health crisis, that the economy will recover much more speedily than it did from any past downturn.

  • Judy Woodruff:

    Does the government have the capacity to keep people afloat who need that help for the duration of this crisis?

  • Janet Yellen:

    Well, they certainly have great capacity.

    And I am impressed by what both the fiscal authorities and the Fed have done so far. It is simply essential to support households and businesses through an incredibly difficult period in which they are facing losses of jobs and incomes and they are struggling to meet everyday expenses for food and rent and utilities.

    And this is due to no fault of their own and no problems with the job market or their businesses.

  • Judy Woodruff:

    Right.

  • Janet Yellen:

    So, Congress has passed the CARES Act, that plus two earlier acts.

    We're seeing a fiscal response that is now a little bit larger than what Congress did in response to the financial crisis in 2008. Now, if this continues, Congress will have to do more. And they're talking about a package.

    And the Federal Reserve response has been utterly heroic. My hat is off to my successor, Chair Powell, and his colleagues for what they have announced and the creativity of what they're doing.

  • Judy Woodruff:

    And in terms of what Congress has done — and I know you have been advising some of the Democrats in Congress — the people we just heard who are struggling, who have completely lost their jobs, how confident are you that most of them are going to be helped?

  • Janet Yellen:

    Well, I think most of them will be helped.

    Unemployment insurance, almost — the eligibility for unemployment insurance is very broad. Congress extended it to gig workers, to self-employed workers. And the federal government is going to top up what the states do by $600 a week.

  • Judy Woodruff:

    Right.

  • Janet Yellen:

    So, that is very meaningful support.

    You know, as you know, it's really hard, in some states particularly, to get through. You call on the phone, it's very hard.

  • Judy Woodruff:

    Exactly.

  • Janet Yellen:

    The agencies are utterly overwhelmed.

    And I know how frustrating it must be. Someone's been laid off, they need to buy groceries and pay the rent, and they can't get through to the unemployment office. So there is a problem, procedural problems of getting that money out.

    But in the coming weeks, the money should be flowing. You know there are direct payments coming to households.

  • Judy Woodruff:

    And in terms of people who own small businesses, and I mean very small businesses, who are worried — and we heard some of that in Paul Solman's report a moment ago — between what Congress has done and the Federal Reserve as done, are they, are most of them going to be made whole, or at least be able to survive?

  • Janet Yellen:

    Well, you know, again, there are startup problems with very big programs.

    But the Paycheck Protection Program that Congress passed and funded with $350 billion, every business under 500 employees is eligible for that. And if they use the money to protect their work force and keep them on, and in addition, for utilities and rent, those loans will turn into grants.

    Now, they need to go to banks to apply. The banks are absolutely swamped. Probably, the program is going to require further appropriations. And it's probably going to be pretty frustrating to get the money in hand. But it's there, and it's coming.

    And it should be available to a wide range of businesses.

  • Judy Woodruff:

    I know a lot of people are asking that question. We have already heard about people having difficulty getting through.

    But you're saying it's going to take time, but it's going to be there?

  • Janet Yellen:

    They're trying — yes, I think the funding is there.

    And if this period of lockdown lasts for more than a month or two, Congress will have to do more. The Fed has almost unlimited capacity, with backing by Congress, to lend throughout the economy. So it will be possible to mainly, mainly support households and businesses through this very difficult time.

    And it's really important that they do so, because we want the economy to get back on track when the public health situation allows it.

  • Judy Woodruff:

    Janet Yellen, we appreciate it. Thank you so much.

  • Janet Yellen:

    Thank you, Judy.

Listen to this Segment

The Latest