Treasury Secretary Mnuchin doesn't see the US falling into recession - and says 'pent-up demand' will boost the post-coronavirus economy
- The US economy will slow down in the near term but avoid falling into a recession, Treasury Secretary Steven Mnuchin said Sunday.
- Economic activity "will pick up as we confront the virus," Mnuchin told ABC.
- The primary focus is on the economic tools being used to get companies through the initial downturn, he added.
- Mnuchin also sees stock prices recovering later in the year, telling CNBC "there will be a huge amount of pent-up demand when this is done."
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An economic rebound will keep the US from sliding into a coronavirus-sourced recession, Treasury Secretary Steven Mnuchin said.
The outbreak has already forced the closure of restaurants, theaters, and entertainment venues in some of the country's biggest cities, cutting out swaths of expected economic activity. Major banks including JPMorgan and Goldman Sachs have officially projected near-term economic recession as the virus places pressure on both supply and demand. The dire forecasts continue to fuel stock market chaos, as equities broadly sank as much as 10% in Monday's session.
Despite the numerous warning signs, Mnuchin said he believes the economic activity is simply being deferred, and not lost, to the pandemic. Banks signaling recession generally agree, with both aforementioned firms recently raising their GDP projections for the second half of 2020. The US will avoid an official recession if companies prepare for a bounce-back in consumer spending, Mnuchin said.
"Later in the year, obviously the economic activity will pick up as we confront the virus," Mnuchin told ABC on Sunday. "The real issue is not the economic situation today. The real issue is what economic tools are we going to use to make sure we get through this."
The secretary also sees the stock market riding a wave of demand once the outbreak is contained. Equities sit deep in bear market territory after more than three weeks of intense selling. Monday's drop marked the steepest yet before stocks pared losses. Several sell-offs were followed by relief rallies the following day, but the upticks have since been dwarfed by market pessimism.
The administration official is already looking ahead to how markets will react to the virus' containment. Investors will drive outsized demand for stocks once prices reach their floor, Mnuchin told CNBC's Jim Cramer on Monday.
"There will be a huge amount of pent-up demand when this is done. And it will be done," Mnuchin said.
Companies with "a ton of liquidity" are best suited to survive the immediate economic downturn, he added.
The comment arrives one day after Goldman Sachs analysts warned that the market slump could extend another 20% before hitting a floor. Supply chain disruptions, weakening demand, and investor positioning could drive the S&P 500 as low as 2,000 in the middle of the year, the team wrote Sunday. Goldman's more hopeful estimate saw the S&P 500 stabilizing at 2,450, but the benchmark slid sank below that level Monday morning.
Investors rushed out of risk assets Monday despite the Federal Reserve issuing surprise stimulus on Sunday. The central bank slashed its interest rate close to zero for the first time since the financial crisis, further easing lending conditions to pad the slowing economy. The ball is now in the banking sector's court, and the federal government is focused on getting liquidity to businesses that need it, Mnuchin told CNBC.
"The banking system can handle this after the Fed's actions," he said. "Our stimulus is designed to let small businesses keep people on payroll ... We'll always be thinking about what happens after we get through this."
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