Former Trump economist: Coronavirus could 'absolutely' spark global recession if not contained

Former White House Council of Economic Advisers Chairman Kevin Hassett says "you're absolutely looking at a recession" if the coronavirus is not contained.

Posted: Feb 29, 2020 8:41 AM
Updated: Feb 29, 2020 8:41 AM

The world economy could stumble into a recession if the coronavirus outbreak is not contained quickly, former White House economist Kevin Hassett warned on Friday.

Hassett, speaking in the midst of the worst week on Wall Street since 2008, expressed concern about the rapid spread of the coronavirus around the world, including in warmer-weather places like Iran.

"If people are able to spread it outside of the flu season, then this has legs through the summer and you're absolutely looking at a recession globally," Hassett, a CNN economics commentator, told CNN's Poppy Harlow.

Asked if a recession in the United States is imminent, Hassett said it's too early to say, but pointed out that first-quarter GDP growth is still likely to be positive.

"We're right at that moment where we just don't know," Hassett said. "If a recession starts, it's really got to start in the second quarter."

Coronavirus fears have rocked financial markets. The S&P 500 has plunged 15% from record highs set just last week. Crude oil prices plummeted 6% Friday alone, underscoring the economic jitters. Investors piled into ultra-safe government bonds, driving the 10-year Treasury yield to all-time lows.

Investors predict Fed rescue

Hassett's comments stand in contrast to ones made by his former colleague Larry Kudlow, director of the National Economic Council.

Speaking to reporters Friday, Kudlow said the fundamentals of the economy remain "strong" enough to offset the turmoil on Wall Street.

"I just don't think this short-term stock market correction is going to have any effect," Kudlow said.

Yet Janet Yellen, the former chair of the Federal Reserve, said Wednesday the spillover from global economic weakness could "throw the United States into a recession."

The market mayhem has prompted calls for the Federal Reserve to take action. Kevin Warsh, a former governor at the Fed, urged global central bankers to take coordinated action.

Investors are predicting dramatic Fed action, the kind unseen since the 2008 financial crisis.

The market is now pricing in nearly a 50% chance of a half-a-percentage point rate cut, according to the CME FedWatch Tool. That's up from zero percent just a day ago.

Inflation risks

Yet James Bullard, president of the St. Louis Fed, suggested in a speech Friday the Fed probably wouldn't cut rates unless the outbreak escalates.

"Further policy rate cuts are a possibility if a global pandemic actually develops with health effects approaching the scale of ordinary influenza," Bullard said, "but this is not the baseline case at this time."

Yet others are urging the Fed to wait because rates are already extremely low and easy money won't solve a health crisis.

Hassett said the Fed must also beware of the risk that the coronavirus causes a "supply shock" that ignites inflation, which has been largely subdued for the past decade.

"The little bit of stuff still being made has to be sold at a higher price," Hassett said of supply shocks. "Against that backdrop, most people think the Fed needs to sadly just sit there and watch for a while."

That won't sit well with Wall Street, which has become accustomed to central bank rescues in response to market stress.

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Illinois Coronavirus Cases

(Widget updates once daily at 7 p.m. CT)

Cases: 1419611

Reported Deaths: 25873
CountyCasesDeaths
Cook56409110566
DuPage940071321
Will783281042
Lake693631028
Kane60205816
Winnebago34822524
Madison32649536
St. Clair30275527
McHenry29684299
Peoria23771347
Champaign21705159
Sangamon19759246
McLean18931194
Tazewell17551309
Rock Island15422329
Kankakee14768224
Kendall13537100
LaSalle12987254
Macon11214215
DeKalb10305122
Vermilion10297154
Adams9751129
Williamson8266138
Whiteside7256174
Boone696580
Ogle630584
Grundy607479
Clinton594293
Coles5887101
Knox5743157
Jackson551265
Henry517170
Macoupin501090
Livingston495194
Woodford493783
Franklin492879
Stephenson489886
Effingham483974
Marion4836118
Jefferson4703123
Monroe453594
Randolph433987
Lee424354
Morgan415693
Fulton412159
Logan410066
Christian397575
Bureau386687
Montgomery386674
Iroquois331068
Perry330262
Fayette327456
McDonough308551
Jersey280252
Saline274057
Douglas265436
Union251842
Lawrence245527
Shelby237438
Crawford221126
Bond213924
Cass211527
Carroll205437
Pike203253
Ford195450
Hancock194932
Wayne192053
Clark191334
Warren186850
Jo Daviess184024
White183326
Richland182840
Edgar180942
Washington170125
Moultrie168728
Mason164847
De Witt161529
Piatt156914
Johnson156716
Clay156343
Greene155734
Mercer152534
Wabash150612
Massac146141
Cumberland131420
Menard128712
Jasper117018
Marshall111419
Hamilton91716
Schuyler8187
Brown8136
Pulaski7497
Stark66925
Edwards64212
Calhoun5442
Henderson53414
Scott5181
Gallatin5144
Alexander49511
Putnam4953
Hardin39712
Pope3464
Unassigned512432
Out of IL00

Indiana Coronavirus Cases

(Widget updates once daily at 8 p.m. ET)

Cases: 771299

Reported Deaths: 14005
CountyCasesDeaths
Marion1059471808
Lake570611031
Allen43193700
Hamilton37458426
St. Joseph37420568
Elkhart29819471
Tippecanoe23584231
Vanderburgh23431405
Porter19616327
Johnson18899394
Hendricks18168323
Clark13623199
Madison13604348
Vigo12908256
Monroe12626178
LaPorte12594225
Delaware11183198
Howard10747237
Kosciusko9810124
Hancock8799150
Bartholomew8296157
Warrick8150157
Floyd8072183
Grant7397181
Wayne7254201
Boone7236105
Morgan6948143
Marshall6358117
Dubois6301118
Cass6110112
Dearborn604078
Noble603590
Henry5971111
Jackson518677
Shelby512898
Lawrence4961127
Gibson467296
Montgomery461392
Clinton458455
DeKalb458485
Harrison456977
Huntington421382
Whitley418645
Steuben412861
Miami407273
Jasper402556
Knox393191
Putnam386862
Wabash371684
Adams355356
Ripley352771
Jefferson347187
White340954
Daviess3098100
Wells304881
Greene295985
Decatur293493
Fayette287464
Posey285435
Scott283458
LaGrange278472
Clay276049
Washington255637
Randolph248283
Jennings240449
Spencer239731
Fountain237250
Starke230859
Owen224759
Sullivan222943
Fulton209545
Jay203432
Carroll198822
Orange192756
Perry191939
Vermillion181944
Rush178627
Tipton173848
Franklin173035
Parke156816
Pike143434
Blackford138232
Pulaski124048
Newton123736
Benton110515
Brown106443
Crawford106316
Martin92715
Warren88015
Switzerland8488
Union73710
Ohio58411
Unassigned0429