Giving $1,000 to every American adult won't do much to offset the coronavirus slowdown, former Fed advisor warns

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Giving $1,000 to every American adult won't do much to offset the coronavirus slowdown, former Fed advisor warns

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FILE PHOTO: An employee shows U.S. dollars banknotes at a money changer in Jakarta, Indonesia, April 24, 2018. Pictures taken April 24, 2018. Antara Foto/Hafidz Mubarak/via REUTERS
  • Mailing out $1,000 to every American adult might fail to forestall a US recession, Andrew Levin, a former special advisor to the Federal Reserve, told CNBC this week.
  • "A lot of cities are shutting down, and people staying home, not going out to restaurants, not going out shopping, not buying cars," he said.
  • Those trends are likely to drastically reduce consumer spending, the key driver of economic activity in the US.
  • "I don't see how we're going to avoid having a recession," Levin said.
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Giving $1,000 to every American adult might not be enough to prevent a US recession, Andrew Levin, a former special advisor to the Federal Reserve, told CNBC this week.

Republican senators Mitt Romney and Tom Cotton, Democratic representatives Tim Ryan and Ro Khanna, and Jason Furman - one of the Obama administration's top economists - have all called for the US government to mail out $1,000 checks to buttress the economy against coronavirus.

However, the rapid spread of the virus - which causes a disease called COVID-19 - has spurred officials in several states to shut schools, cancel major events such as Coachella and SXSW, close down entertainment venues such as bars, restaurants, and cinemas, and direct people to remain at home and minimize social contact. Retailers including Apple, Nike, Sephora, and Victoria's Secret-owner L Brands have shuttered stores to help slow transmission as well.

"The problem for the US economy is a lot of cities are shutting down, and people staying home, not going out to restaurants, not going out shopping, not buying cars," Levin told CNBC.

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Locking down populations might help to tackle the public health threat, but given consumer spending accounts for two-thirds of US economic activity, it's a recipe for a downturn.

"I don't see how we're going to avoid having a recession," Levin said.

The Trump administration's best chance to shore up economic growth is to "keep money in people's pockets," minimize layoffs, and provide liquidity to small- and medium-sized businesses to spare them from bankruptcy, Levin argued.

If the coronavirus threat fades by July or August and people can return to work, the US economy could make a "fairly quick" recovery, he added.

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