The U.S. and Canada are likely to tip into recession as the economic impact from COVID-19 continues to spread, according to a former U.S. Federal Reserve vice-chair.

“It would be a miracle if Canada doesn’t have a recession, but we shouldn’t bank on miracles,” said Alan Blinder, who served at the Fed from 1994 to 1996, and is currently an economics professor at Princeton University.

“I think the U.S. is certain to have a recession, in fact, I think we’re already in it. Data lags by months so we won’t know by June what the March economy will be like but you can, to some extent, see it with the behaviour of consumers.”

Global markets have whipsawed over the past several days, with U.S. and Canadian stock exchanges set to have one of their worst weeks in history, as policymakers attempt to curb the impact the novel coronavirus is having on the world’s economy. On Thursday, the Toronto Stock Exchange had its worst one-day move since 1940, while the major U.S. indices fell into a bear market.

While economists are more likely to look at the bond market and evaluate how risk spreads are faring to determine the health of the economy, Blinder advises investors to simply look outside to gauge whether life is returning to normal amid a flood of announcements shutting down events or businesses that often host major gatherings.

“Watch for scraps of information on the behaviour of consumers. If the thing is passing and you see people going back to restaurants and beauty salons … things like that where you’re in close human contact, that would be a sign that the anxiety is being alleviated,” he said.

Blinder also said some of the financial moves that central banks have adopted over the past week are less important than what public health authorities are doing to stem further spread of COVID-19. The Bank of Canada has cut its interest rate by 100 basis points over the past two weeks, including an emergency 50-basis-point reduction on Friday, while the Fed slashed rates by 50 basis points to help soften the economic impact of the COVID-19 outbreak on March 3.

“This is a case where horrible things are happening in the real economy,” Blinder said.  

“The Bank of Canada is not going to compete with going out to the movies more by cutting interest rates,” he added. “What they can do is to make sure companies don’t get starved of liquidity and needlessly go out of business rather than tying themselves over this horrible, but short-lived, situation.”