Coronavirus could drive the US economy into recession, ex-Fed chief Janet Yellen warns

Reuters/Jonathan Ernst

• Ex-Federal Reserve Chair Janet Yellen warned coronavirus could cause the US economy to shrink, according to Bloomberg.
• "It's just conceivable that it could throw the United States into a recession," the former central-bank boss said.
• The Fed will shore up consumer spending, the US economy, and financial markets if needed, Yellen added.
• Coronavirus has infected more than 82,000 people, killed at least 2,800, and spread to more than 40 countries.
• Visit Business Insider's homepage for more stories.

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The rampaging novel coronavirus threatens to choke global growth and might even shrink the US economy, former Federal Reserve Chair Janet Yellen warned on Wednesday.

"It's just conceivable that it could throw the United States into a recession," Yellen said at a Brookings Institution event in Michigan, according to Bloomberg. A technical recession is defined as two consecutive quarters of GDP declines.

Coronavirus - which causes a disease called COVID-19 - has infected more than 82,000 people, killed north of 2,800, and spread to upwards of 40 countries. It has caused cities to lock down, forced factories and stores to shut, and deterred travel, shopping, and other economic activities.

The epidemic has led American businesses including Apple, Disney, and Starbucks to temporarily close their locations in China or limit their opening hours. Dozens of companies have warned of disruptions to their supply chains and declines in consumer demand.

Yellen - who served as Fed chair between 2014 and 2018 - said the risk of a US recession depends on the severity of any outbreak, and underscored America's robust economy.

"If it doesn't hit in a substantial way in the United States, that's less likely," she said, according to Bloomberg. "We had a pretty solid outlook before this happened - and there is some risk, but basically I think the US outlook looks pretty good."

Feeble growth in other parts of the world could make them more vulnerable to a downturn, Yellen continued.

"We could see a significant impact on Europe, which has been weak to start with," she said.

The government will step in if needed, the former central-bank boss added.

"The Fed does have some scope - it's not a cure-all," she said. "But it will provide a little bit of support to consumer spending and to the US economy and for financial markets."

"If it becomes very serious, fiscal policy could play a more active role too," she added, according to Bloomberg.

Yellen didn't anticipate an imminent recession when she spoke at the World Business Forum in November, which shows how coronavirus has rapidly altered the global economic outlook.

"I would bet there would not be a recession in the coming year," she said at the time. However, she cautioned there was "good reason to worry" due to growing wealth inequality, the US-China trade war, and the Fed's limited ability to help after cutting interest rates three times in less than a year.

"I would have to say that the odds of a recession are higher than normal and at a level that frankly I am not comfortable with," she added.

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