Yahoo Finance Jefferies' Zervos on why the COVID-hit economy has 'bounced back in a major way'
The U.S. economy’s recovery from the depths of the COVID-19 crisis is an "important achievement" even in spite of worries about rising cases — and the Federal Reserve deserves credit, a top Wall Street analyst told Yahoo Finance this week.
Post-election uncertainty and soaring coronavirus infections worldwide are overshadowing good news about the recovery — like October’s surprisingly upbeat nonfarm payrolls data. However, Jefferies chief market strategist David Zervos told Yahoo Finance Live that the battered economy has “bounced back in a pretty amazing way — not just in the stock market, actually on Main Street as well.”
He argued that despite “plenty of negatives,” the idea that the economy would be stuck in the doldrums indefinitely has been “put to bed.”
Economists are trained to believe that when there's a massive shock, "it's very unusual to have the economy just bounce back from that." He noted that this didn't happen after the Great Depression, the Global Financial crisis, or other shocks in prior decades.
"This idea —when you kind of flush everything out, you sort of tepidly step back in — what's been so amazing to watch is we lost something like 21 million or 22 million jobs [and] very quickly...we gained over 12 million of those back and in five or six months. It's an amazing feat," Zervos added.
Thanks to the Fed
Zervos, who worked as an economist and advisor to the Federal Reserve, pointed to the bounce back in employment, which he believes is driven by the Fed's prompt and aggressive action on monetary policy.
Meanwhile, the unemployment rate dropping to 6.9% last month is even more impressive, because the economy has "done that with at least one hand tied behind our back," Zervos explained, given social distancing and travel restrictions and changes on everyday interactions during the coronavirus pandemic.
"To be able to put that many jobs back in five months, I don't think any economic model at the Fed or anywhere would have had that,” the analyst told Yahoo Finance.
“So, I think it's a real testament to how quickly our economy shifted away from, say, travel leisure jobs and into maybe construction jobs or tech jobs. We were able to see businesses that could profit or might be the future under the pandemic really flourish, and I think a lot of that goes down to the Fed making sure that liquidity conditions were ripe for those that were in a position to be able to capitalize on it," Zervos added.
Joint action between the central bank, the Trump administration and Congress — which helped businesses and consumers with emergency financial lifelines, — were “all important fiscal remedies. They were getting money into people's pockets, and they were getting an easing, if you will, in financial conditions," Zervos stated.
Yet he added that the idea of spending big on infrastructure projects like airports, roads, and bridges to get out of the depths of the crisis was "just sort of a silly concept." He likened the initiative to costly projects in Japan, which failed to live up to their billing and did little to boost the country’s growth.
"The key to the future of growth is not having Mitch McConnell and Nancy Pelosi pick winners and losers with big fiscal packages, it's actually, having real investors with real capital on the line go out in the private sector and make decisions on how to put that capital to work for risk purposes,” Zervos said.
“And the Fed, when they lower real rates and do what they did with liquidity, actually incentivizes that behavior,” he added.
Julia La Roche is a correspondent for Yahoo Finance. Follow her on Twitter.
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