It will take a $1.5 trillion stimulus to save America, former Fed economist says

Top Federal Reserve officials rarely like to tell Congress what to do. Former Fed economists feel free to offer advice without compunction.

So what is the advice of Claudia Sahm, an economist and one-time top Fed staffer, for lawmakers weighing an economic stimulus package to help deal with the coronavirus outbreak?

“They need to go big, and they need to go now,” Sahm said Tuesday. “I don’t want to see anything less than $1.5 trillion,” she said.

“This recession looks like a very serious one,” and it is likely to be “twice as deep” as the Great Recession, Sahm said, although hopefully it will much shorter than that downturn, which lasted 18 months.

At the moment, two or three quarters of negative GDP growth looks likely, she said.

The best way to look at it is to imagine a long-lasting hurricane. As soon as it is over, activity comes back to normal, although the lost spending is not made up.

The recession has already started this month, Sahm said.

Claudia Sahm

Earlier this year, Sahm left the Fed and is now director of macroeconomic policy at the Washington Center for Equitable Growth.

Read:Here are the industries that could get coronavirus aid from the U.S. government

“We can’t stop this recession, but we can buffer as much as possible and what we really gain is on the other side of the recession — the recovery,” she said.

Congress has to push a lot of money out for public health and also for economic health, she said. “That is a big ticket.”

The stimulus has to be broad and help as many people as possible, she added, noting that we’ve never seen an economy that was just shutting down.

Sahm said once the country beats the virus, the economy can recover, although the U.S. has a very thin safety net, relative to other countries, and there is a danger the state unemployment insurance program will be overwhelmed.

The Fed is “not out of ammo,” and could craft a program to help small businesses access credit, she said.

It could be similar to a program pushed by former Fed Gov. Kevin Warsh, who advocated a credit facility for business in a recent op-ed in the Wall Street Journal.

The Dow Jones Industrial Average DJIA, -5.61% rose more than 1,000 points, or 5.2%, on Tuesday on increased talk of a Congressional stimulus package.