Submitted by Taps Coogan on the 2nd of April 2020 to The Sounding Line.

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Dallas Fed President Robert Kaplan recently spoke with CNBC to discuss his economic outlook in light of the Coronavirus outbreak and oil price war. He warns that even if the Saudis and Russians cut oil production, as has been hinted at today, substantial excess oil supply will need to be burnt through before energy markets re-balance. He also expects the unemployment rate in the US to rise to the low to mid teens and to be around 8% by the end of the year. As a point of reference, since 1948, the official US unemployment rate has been over 10% for a grand total of six months and has never above 11%.

 

Some excerpts from Robert Kaplan:

“(A Saudi-Russia oil cut) will be very welcome by the industry. In the short run, as long as the Coronavirus continues, there is just a substantial amount of excess… supply being generated everyday. So much so that we’re starting to worry about storage capacity for it. So this (potential deal) will be extremely helpful… and it will speed the time, hopefully, where the supply demand for oil can get into balance. But, we are a long long way from that and people had warned that even with a substantial move from Saudi Arabia and Russia, we are going to be spending a substantial amount of time working off a high level of over-supply…”

“Based on our models, our judgement is that basically: severe contraction in the second quarter, probably some negative GDP at the start of the third quarter and then some rebound. The issue is: what’s the strength of the rebound. And the reason that we are trying to come to grips with that is… business fixed investment for the last couple of years has been sluggish, manufacturing has been sluggish. The bright spot in the economy, the underpinning, has been the consumer, and clearly the consumer is going to come out of this weakened compared to what we have had in the past. We’re going to have unemployment that is going to get in the low to mid teens. We will likely end the year below 10% unemployment, likely closer to 8%, but then it’s going to take us a while to work that off. So the consumer is going to be much more cautious for obvious reasons…”

Frankly, that’s the gloomiest economic prognosis I can ever recall from a Fed official. There is much more to the interview, so enjoy it above.

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