Marcoeconomic Paper

CORONAVIRUS FEARS AND MACROECONOMIC EXPECTATIONS

Carola Binder*

Abstract—The Federal Reserve cut interest rates on March 3, 2020, in re- sponse to COVID-19. On March 5 and 6, I surveyed over 500 consumers about their concerns about COVID-19, awareness of the Fed’s announce- ment, and macroeconomic expectations. Most consumers were concerned about effects of COVID-19 on the economy, their health, and their per- sonal finances. About 38% were aware that the Fed had cut interest rates. Greater concern is associated with higher inflation expectations and more pessimistic unemployment expectations. I informed respondents about the Fed’s announcement, which led some consumers to become more optimistic about unemployment and revise inflation expectations downward.

I. Introduction

ON March 3, 2020, the Federal Reserve lowered the fed-eral funds rate target by 50 basis points to a range of 1% to 1.25%. This was the first rate cut made outside of a regu- larly scheduled Federal Open Markets Committee (FOMC) meeting since 2008. The FOMC statement noted that “the fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity … . The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy.”

In the press conference associated with the rate cut, chair- man Jerome Powell added that the policy move would “help boost household and business confidence.” The spread of COVID-19 (coronavirus) is not neatly classified as either a demand or a supply shock (Cochrane, 2020), but it may re- sult in both “practical and psychological” demand shocks, if consumers are prevented from getting to stores or post- pone purchases in the face of huge uncertainty (Baldwin & di Mauro, 2020).

On March 5 and 6, 2020, I conducted an online survey using Amazon Mechanical Turk, a Web service that allows requesters to post small tasks in exchange for a posted mon- etary payment.1 I surveyed US consumers ages 18 and over about their attention to and concerns about the coronavirus, the news they heard about the Fed, and their expectations of inflation and unemployment. I then provided the respondents with the March 3 FOMC statement and information about the rate cut and resolicited their expectations of inflation and unemployment. I also collected information about respon- dents’ demographics, numeracy, news sources, attention to the stock market, and confidence in the Fed and the presi-

Received for publication March 13, 2020. Revision accepted for publica- tion April 22, 2020. Editor: Olivier Coibion.

∗Binder: Haverford College. This research received funding from the Haverford College faculty re-

search fund. A supplemental appendix is available online at http://www.mitpress

journals.org/doi/suppl/10.1162/rest_a_00931. 1Mechanical Turk allows for recruitment of subject pools that are more

nationally representative than typical convenience samples, making it a popular choice for social science experiments (Berinsky, Huber, & Lenz, 2012; Casler, Bickel, & Hackett, 2013; Levay, Freese, & Druckman, 2016).

dent. Half of the consumers were provided with very brief information about coronavirus at the start of the survey. This treatment slightly increased health-related concerns but had no discernible effects on other outcomes.

Consumers were generally attentive to and concerned about the coronavirus; moreover, 28% had cancelled or post- poned travel, and 40% had purchased food or supplies in re- sponse to these concerns. Concerns and responses vary with consumer characteristics. For example, respondents who own stocks or follow news about the stock market seem to be at- tentive to coronavirus news, more concerned, and more likely to have responded, and newspaper readers are also more con- cerned. However, much of the variation in consumer concern and response seems idiosyncratic, or not explained by basic demographic characteristics, numeracy, or even confidence in the president. Consumer characteristics also help predict awareness of the Fed’s March 3 rate cut. Around 52% of con- sumers had heard news about the Fed in the past week, and 38% knew that the Fed had cut rates. Numerate consumers, stock owners, and print news readers were significantly more aware of the rate cut.

Note that when I conducted my survey, the effects of COVID-19 had not yet spread widely in the United States, and major business and school closures and stay-at-home orders had not yet happened. Thus, there was room for a good deal of heterogeneity in awareness of and concern about the virus. This heterogeneity is useful for allowing me to study the re- lationship of pessimism, information, and macroeconomic expectations. Greater concern about coronavirus is associ- ated with higher inflation expectations and more pessimistic unemployment expectations. This is consistent with recent research showing that many consumers equate “bad times” with “high inflation” (Kamdar, 2019).2 Provision of infor- mation about the Fed announcement leads some consumers to become more optimistic about unemployment and revise inflation expectations downward. Consumers who were not already aware of the rate cut are more likely to revise their ex- pectations in response to information about the rate cut. But overall, information about the announcement did not reduce disagreement, as consumers reacted heterogeneously to the information.

Since early March, awareness of and concern about the virus has grown, as far more people have experienced health and economic consequences. In late March and early April, for example, around 6 million new unemployment claims were filed per week (Coibion, Gorodnichenko, & Weber, 2020). Meanwhile, a survey-based literature on the

2For example, a recent decline in inflation expectations on the Michigan Survey of Consumers reflected improved macroeconomic conditions and consumer confidence (Binder, 2020a). Many consumers also have a “1970s model” of the economy and interpret rising gas prices as both inflationary and a sign of low economic activity (Binder & Makridis, 2020).

The Review of Economics and Statistics, October 2020, 102(4): 721–730 © 2020 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology https://doi.org/10.1162/rest_a_00931

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COVID-19 outbreak and consumer beliefs, expectations, ex- periences, and preferences is rapidly emerging. Bu et al. (2020) conduct a repeated survey of a panel of graduate stu- dents in Wuhan, China, and find that exposure to strict quar- antine led to more pessimistic beliefs about the economy, lower risk tolerance, and lower trust in others. Fetzer et al. (2020) conduct an online survey of US consumers on March 5 and 16 and find that concern about the virus grew from the earlier to the later survey date. They elicit respondents’ sub- jective mental models of infectious disease spread and find that cognitive limitations (e.g., underestimation of the non- linear nature of disease spread) affect individuals’ economic anxieties associated with the COVID-19 pandemic. More re- cent surveys reveal strong partisan differences in social dis- tancing and self-quarantining behavior and beliefs about the virus (Gadarian et al., 2020; Barrios & Hochberg, 2020; All- cott et al., 2020). Hanspal, Weber, and Wohlfart (2020) survey in April find that younger and poorer households face larger income shocks related to the pandemic and that households exposed to larger income losses are more likely to report plans to decrease total expenditures. Early April survey evidence from Coibion, Gorodnichenko, and Weber (2020) indicates that the COVID-19 crisis may be driving a wave of earlier- than-planned retirements.

This paper is also related to a broader recent literature that uses online experiments or surveys to study the formation of consumer expectations and response to information or Fed communication (Armantier et al., 2016; Binder & Rodrigue, 2018; Binder, 2020b; Coibion, Gorodnichenko et al., 2020). For example, Lamla and Vinogradov (2019) conduct a se- ries of online surveys a few days before and after FOMC announcements and find that consumers are more likely to hear news about the Fed following an FOMC announcement, but the news does not appear to change their inflation and in- terest rate expectations. The announcement I study was made outside a regularly scheduled FOMC meeting, and therefore potentially more newsworthy: 35% of respondents in their surveys and 52% in mine had heard recent news about the Fed.

II. Survey Design

I ran the survey in several batches on March 5 and 6, to reach people in different time zones or with different work schedules. Following Allcott and Gentzkow (2017) and Binder and Rodrigue (2018), I allowed respondents to take the survey only if they answered the following question affirmatively:

We care about the quality of our data. In or- der for us to get the most accurate measures of your knowledge and opinions, it is important that you thoughtfully provide your best answers to each question in this survey. Do you com- mit to thoughtfully provide your best answers to each question in this survey?

A total of 520 respondents answered affirmatively and went on to complete the survey. I dropped 18 respondents who completed the survey in less than 2 minutes, leaving 502 respondents, who took the survey in 7.3 minutes on average.

The survey begins with questions about age, gender, ed- ucation, household income, and stock market participation.3

Online appendix table A.1 summarizes basic demographic information of respondents. One-third of the sample is fe- male, 21% have household income below $30,000 per year, and 26% have household income above $75,000 per year. I constructed survey weights to match the gender and income distribution of the national population, which I use in all of the analysis.

Next, respondents select their primary source(s) of news about the economy from social media, print sources or news- paper, online sources, television, and radio. They are asked, “On a scale from 1 to 7, how well would you say you under- stand what ‘inflation’ means?” They are also asked if they know the Fed’s inflation target and, if so, to provide the number.

Respondents then answer a series of questions about their attention to and concerns about the coronavirus and news about the stock market and the Fed. Half of respondents, selected randomly, receive the following information about the coronavirus before answering these questions:

The World Health Organization (WHO) re- cently upgraded the global risk from the coro- navirus outbreak to “very high.”

In the United States, cases have been confirmed in Arizona, California, Florida, Georgia, Illinois, Massachusetts, New Hamp- shire, New York, New Jersey, North Carolina, Oregon, Rhode Island, Texas, Washington and Wisconsin, according to researchers at Johns Hopkins University.

The other half receive no information. Questions and pos- sible responses are as follows:

• How closely have you been following the news about the coronavirus (Covid-19) outbreak? (Not closely at all, somewhat closely, very closely)

3Many of the survey questions follow Binder and Rodrigue (2018) and Binder (2020b). The household income question asks, “Which category rep- resents the total combined pre-tax income of all members of your household (including you) during the past 12 months? Please include money from all jobs, net income from business, farm or rent, pensions, interest on sav- ings or bonds, dividends, social security income, unemployment benefits, Food Stamps, workers compensation or disability benefits, child support, alimony, scholarships, fellowships, grants, inheritances and gifts, and any other money income received by members of your family who are 15 years of age or older.” The stock market participation question asks, “Do you (or any member of your family living there) have any investments in the stock market, including any publicly traded stock that is directly owned, stocks in mutual funds, stocks in any of your retirement accounts, includ- ing 401(K)s, IRAs, or Keogh accounts?” Wording is from the Michigan Survey of Consumers.

CORONAVIRUS FEARS AND MACROECONOMIC EXPECTATIONS 723

• How concerned are you about the effects that the coron- avirus might have on the US economy? (Not at all con- cerned, somewhat concerned, very concerned)

• How concerned are you about the effects that the coron- avirus might have on your health or the health of members of your household? (Not at all concerned, somewhat con- cerned, very concerned)

• How concerned are you about the effects that the coron- avirus might have on the financial situation of your house- hold? (Not at all concerned, somewhat concerned, very concerned)

• Have you cancelled or postponed any travel plans due to coronavirus concerns? (Yes, no)

• Have you purchased food or supplies due to coronavirus concerns? (Yes, no)

• How closely do you follow news about the stock market? (Not closely at all, somewhat closely, very closely)

• In the past week, have you heard or read any news about the Federal Reserve? (Yes, no)

• (If “yes” to previous question) What news did you hear or read about the Federal Reserve? (The Fed raised in- terest rates, the Fed cut interest rates, other news [please describe])

• As to the economic policy of the government—I mean steps taken to fight inflation or unemployment—would you say the government is doing a good job, only fair, or a poor job? (Good job, only fair, poor job)4

Next, respondents provide their expectations of unemploy- ment and inflation in the next twelve months, following the elicitation procedure of the Michigan Survey of Consumers.

• How about people out of work during the coming twelve months–do you think that there will be more unemploy- ment than now, about the same, or less? (More unemploy- ment, about the same, less)

• During the next twelve months, do you think that prices in general will go up, or go down, or stay where they are now? (Stay the same, lower, don’t know)5

4This question is from the Michigan Survey of Consumers. 5“Stay the same” and “don’t know” responses prompt further questioning.

See “Survey of Consumers Questionnaire” (University of Michigan Survey Research Center, n.d.) codebook for details.

• By about what percent per year do you expect prices to go (up/down) on the average during the next twelve months?

I next provide respondents with the information about the Fed’s rate cut. The Federal Reserve issued the following state- ment on March 3, 2020:

The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolv- ing risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Fed- eral Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 11/4 percent. The Committee is closely monitoring develop- ments and their implications for the economic outlook and will use its tools and act as appro- priate to support the economy.

In a press conference following the Federal Reserve’s rate cut on March 3, the Federal Reserve chair said the following:

Monetary policy can be an effective tool to sup- port overall economic activity. We do recognize that a rate cut will not reduce the rate of infec- tion. It won’t fix a broken supply chain. We get that. We don’t think we have all the answers. But we do believe that our action will provide a meaningful boost to the economy. More specif- ically, it will support accommodative financial conditions and avoid a tightening of financial conditions which can weigh on activity, and it will help boost household and business confi- dence. That’s why you’re seeing central banks around the world responding as they see appro- priate in their particular institutional context.

I reelicit unemployment and inflation expectations exactly as before. Then I ask respondents to report “how much con- fidence you have in each of the following to do or to recom- mend the right thing for the economy” for President Donald Trump and the Federal Reserve. Choices were “almost no confidence,” “a little confidence,” “a fair amount of confi- dence,” and “a great deal of confidence.” Respondents are also asked to identify the Fed chair, with the possible options of “Jerome Powell,” “Alan Blinder,” and “Alan Greenspan.” Respondents answer two numeracy test questions from the Federal Reserve Bank of New York’s Survey of Consumer Expectations:

• If the chance of getting a disease is 10 percent, how many people out of 1,000 would be expected to get the disease?

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FIGURE 1.—CORONAVIRUS ATTENTION, CONCERN, AND RESPONSE

Panel A shows the percent of consumers who report following news about coronavirus not closely at all, somewhat closely, or very closely. Panels B, C, and D show the percent who are not at all concerned, somewhat concerned, or very concerned about effects of coronavirus on the US economy, their household’s health, and their personal finances. Panels E and F show the percent who have cancelled or postponed travel or purchased food or supplies in response to coronavirus concerns.

• Imagine the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, how much would you be able to buy with the money in this account? (More than today, exactly the same, less than today)

I classify respondents as numerate if they answer both questions correctly. Finally, respondents could provide an open-ended response about “anything at all that you would like to add or to tell us about this survey.”

III. Concern about Coronavirus

Figure 1 summarizes respondents’ attention to, concerns about, and responses to the coronavirus outbreak. Nearly all participants follow news about coronavirus—50% somewhat closely and 43% very closely. Consumers vary in how con- cerned they are about the effects of coronavirus on the na- tional economy, their household’s health, and their personal finances. Concerns about economic effects are most preva- lent, with 52% somewhat concerned and 38% highly con-

cerned. Consumers who follow news about the coronavirus more closely tend to be more concerned about the effects of the virus.

The bottom panels of figure 1 show how consumers have actually responded to their concerns. When asked, “Have you cancelled or postponed any travel plans due to coronavirus concerns?” 28% say yes, and 40% say they have “purchased food or supplies due to coronavirus concerns.” For consumers with greater concern about the effects of coronavirus, cancel- ing travel or making purchases is more prevalent; for exam- ple, 45% of consumers with high concerns about effects on their household health have cancelled travel and 56% have purchased food or supplies.6

A. Predictors of Concern

Table 1 displays ordered probit regressions of the coronavirus attention, concern, and response variables on

6Online appendix table A.2 summarizes the correlations between each of these concerns and response-related variables.

CORONAVIRUS FEARS AND MACROECONOMIC EXPECTATIONS 725

TABLE 1.—CONSUMER CHARACTERISTICS AND CORONAVIRUS ATTENTION, CONCERNS, AND RESPONSES

(1) (2) (3) (4) (5) (6) News Economy Health Finances Travel Purchases

age −0.05 0.00 −0.01 0.02 −0.02 −0.03 (0.04) (0.04) (0.04) (0.04) (0.06) (0.05)

ageSq 0.00 0.00 0.00 −0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)

female 0.28** 0.30** 0.07 0.26** 0.04 0.33**

(0.14) (0.14) (0.14) (0.13) (0.18) (0.16) numerate −0.01 −0.30* −0.63*** −0.74*** −0.96*** −0.39**

(0.16) (0.16) (0.18) (0.14) (0.19) (0.18) stockowner 0.11 0.26 0.15 0.36** 0.79*** 0.66***

(0.19) (0.18) (0.16) (0.17) (0.24) (0.19) stocknews 1.15*** 0.98*** 0.40* 0.89*** 0.28 −0.13

(0.21) (0.22) (0.23) (0.22) (0.25) (0.23) collegedegree 0.18 0.19 0.12 0.09 0.27 0.11

(0.18) (0.18) (0.17) (0.18) (0.23) (0.18) highincome −0.15 −0.16 −0.11 −0.31** −0.43** −0.24

(0.16) (0.15) (0.15) (0.14) (0.19) (0.18) lowincome −0.20 0.00 −0.16 0.08 −0.08 −0.18

(0.19) (0.17) (0.18) (0.17) (0.22) (0.20) socialmedia −0.08 0.05 0.02 0.10 0.66*** 0.25

(0.15) (0.14) (0.14) (0.13) (0.19) (0.19) print 0.38** 0.44** 0.19 0.40** 0.19 0.04

(0.18) (0.19) (0.21) (0.16) (0.25) (0.23) online 0.17 0.26* −0.14 0.02 0.09 0.05

(0.15) (0.15) (0.15) (0.14) (0.20) (0.19) radio 0.10 −0.21 0.06 −0.52** −0.28 0.15

(0.18) (0.19) (0.25) (0.23) (0.29) (0.25) tv 0.10 0.04 0.19 0.15 0.29 0.52***

(0.14) (0.14) (0.16) (0.13) (0.20) (0.18) govgoodjob −0.04 −0.18 −0.14 −0.23 0.32 0.20

(0.16) (0.17) (0.18) (0.15) (0.20) (0.20) govpoorjob 0.28 0.12 0.41** 0.03 0.65** 0.33

(0.21) (0.19) (0.20) (0.20) (0.27) (0.22) N 498 498 497 499 499 499 R2 pseudo 0.10 0.11 0.06 0.12 0.27 0.13

Robust standard errors in parentheses. ∗∗∗ p < 0.01, ∗∗ p < 0.05, and ∗ p < 0.10. Ordered probit (columns 1–4) and probit (columns 5–6) regressions. Dependent variables in columns 1 to 4 are categorical variables describing respondent’s attention to news about coronavirus, concerns about effects of coronavirus on national economy, household health, and personal finances. Dependent variables in columns 5 and 6 are dummy variables indicating that the respondent has cancelled or postponed travel due to coronavirus concerns or has purchased food or supplies due to coronavirus concerns.

respondent characteristics. Women are more likely than men to follow coronavirus news, to be concerned about economic and personal financial effects, and to have made purchases in response to concerns; each of these marginal effect sizes is around 10 percentage points. D’Acunto, Malmendier, and Weber (2020) document a “gender expectations gap” for a range of macroeconomic and financial expectations and ar- gue that this is attributable to gendered differences in gro- cery shopping and exposure to price signals. More generally, women tend to be more pessimistic than men in a variety of contexts (Dawson, 2017; Bjuggren & Elert, 2019).

Respondents who own stocks or follow news about the stock market seem more attentive to coronavirus news, more concerned, and more likely to have responded. For example, owning stocks is associated with a 10 percentage point greater likelihood of being highly concerned about personal finances and following news about stocks with a 26 percentage point greater likelihood. Stock prices began falling in late February, so by March 5, stock owners could have already experienced substantial losses of wealth. High-income respondents are 9 percentage points less likely to be highly concerned about effects on their personal finances, after controlling for stock

market participation. These respondents likely have greater job security and ability to work from home. They may be salaried rather than hourly workers and thus are less likely to face a major loss of wages.

Respondents’ level of concern also depends on where they get their news. Readers of print news (including news- papers) are more attentive to and concerned about coron- avirus, perhaps because newspapers cover the economy more than other media platforms and frequently exhibit “negativity bias” (Soroka & McAdams, 2015; Binder, 2017b). Social me- dia news consumers are more likely to have cancelled travel plans. Social media users are more likely to share travel expe- riences and recommendations and collaborate on travel plan- ning in online communities, which might make them more aware of health risks in their travel destinations (Cahyanto et al., 2011).

Consumers with a poor opinion of the government’s eco- nomic policies are more concerned about the coronavirus (though only the coefficient on health concern is statistically significant) and more likely to have cancelled travel. Opinion of government economic policy may be a proxy for political party, as many consumers blame or credit the president for

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TABLE 2.—RESPONSE OF CORONAVIRUS CONCERNS TO INFORMATION TREATMENT

(1) (2) (3) (4) (5) (6) Economy Health Finances Economy Health Finances

Treated −0.05 0.23 0.15 −0.06 0.40** 0.23 (0.14) (0.14) (0.13) (0.18) (0.19) (0.16)

age 0.01 −0.01 0.02 0.10* 0.11** 0.09* (0.04) (0.04) (0.04) (0.05) (0.05) (0.05)

ageSq 0.00 0.00 −0.00 −0.00 −0.00* −0.00 (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)

female 0.29** 0.07 0.27** 0.11 0.03 0.22 (0.14) (0.14) (0.14) (0.17) (0.18) (0.17)

numerate −0.26* −0.55*** −0.70*** −0.36* −1.01*** −0.78*** (0.15) (0.17) (0.14) (0.20) (0.20) (0.19)

stockowner 0.22 0.10 0.30* 0.23 0.23 0.50**

(0.18) (0.16) (0.17) (0.21) (0.20) (0.20) stocknews 0.93*** 0.32 0.83*** 0.77* −0.43 0.86***

(0.22) (0.22) (0.22) (0.45) (0.31) (0.29) collegedegree 0.14 0.10 0.09 −0.09 −0.05 −0.04

(0.18) (0.17) (0.18) (0.23) (0.20) (0.23) highincome −0.12 −0.10 −0.28** −0.35* −0.09 −0.24

(0.15) (0.14) (0.14) (0.19) (0.20) (0.18) lowincome 0.05 −0.08 0.11 −0.35* −0.16 0.00

(0.18) (0.17) (0.18) (0.20) (0.24) (0.21) socialmedia 0.04 0.01 0.10 0.21 0.19 0.38**

(0.13) (0.14) (0.13) (0.16) (0.19) (0.16) print 0.45** 0.18 0.36** 0.23 −0.05 0.44**

(0.18) (0.21) (0.16) (0.18) (0.22) (0.22) online 0.29** −0.06 0.06 0.24 −0.04 0.08

(0.14) (0.14) (0.14) (0.17) (0.17) (0.17) radio −0.20 0.05 −0.52** 0.21 0.25 −0.34

(0.19) (0.26) (0.24) (0.23) (0.25) (0.28) tv 0.03 0.18 0.14 0.14 0.28 0.20

(0.14) (0.15) (0.13) (0.17) (0.18) (0.16) N 498 497 499 298 297 299 Pseudo-R2 0.10 0.06 0.12 0.10 0.12 0.15 Sample All All All Low news Low news Low news

Robust standard errors in parentheses. ∗∗∗ p < 0.01, ∗∗ p < 0.05, and ∗ p < 0.10. Ordered probit regressions. Dependent variables are categorical variables describing respondent’s attention to news about coronavirus, concerns about effects of coronavirus on national economy, household health, and personal finances. “Treated” indicates that the respondent received information about the coronavirus prior to reporting her concerns. In columns 4 to 6, sample is restricted to respondents who follow coronavirus news somewhat closely or not at all.

the state of the economy (Binder, 2017a).7 Poor opinion of government economic policy may go hand in hand with low confidence in the government’s ability to manage a public health crisis. Fetzer et al. (2020) find that Democrats are more concerned about the COVID-19 crisis than Republicans. Fi- nally, note that the pseudo-R2 of the regressions is low. Thus, concern about coronavirus seems to be largely idiosyncratic.

B. Information Treatment and Concern

Recall that I randomly provided half of the respondents with information from the World Health Organization and John Hopkins University about the coronavirus. Table 2 shows ordered probit regressions of coronavirus-related con- cern on the treatment dummy and respondent characteris- tics.8 The treatment is associated with a statistically insignif-

7Online appendix table A.3 summarizes the correlations between opin- ion of the government’s economic policies, confidence in the president, and confidence in the Federal Reserve. All three are positively correlated. Opinion of government economic policy is more strongly correlated with confidence in the president.

8Summary statistics of respondent characteristics for the treatment and control groups are in online appendix table A.4. I do not include the other

icant increase in health and personal finance–related concern. Columns 4 to 6 of the table restrict the sample to respondents who follow coronavirus news somewhat closely or not at all (excluding respondents who follow the news very closely). These respondents should be more susceptible to the informa- tion treatment, since they are less likely to be already aware of the information. Indeed, the treatment effect on health con- cerns is larger and statistically significant. The marginal effect implies that a respondent who receives the information treat- ment is 11 percentage points more likely to be somewhat or very concerned about the effects of coronavirus on household health.9

coronavirus-related variables (news, travel cancellations, and purchases) as outcome variables because they should not plausibly respond to the treat- ment. I have verified that they do not respond to the treatment.

9The information treatment mentions specific states that had reported cases at the time. I use the IP addresses of the users to construct a proxy for their state of residence; 59% of respondents live in the states mentioned in the information treatment. I construct a dummy variable S indicating that the respondent lives in a state mentioned in the information treatment. To test whether the effect of the information treatment is stronger for partici- pants living in the mentioned states, in online appendix table A.5, I regress key survey responses (related to coronavirus concerns, macroeconomic ex- pectations, and opinion of government policy) on S, the treatment dummy, and their interaction, along with the demographic control variables included

CORONAVIRUS FEARS AND MACROECONOMIC EXPECTATIONS 727

IV. Awareness of Fed Policy

Previous literature documents that consumer knowledge of the Fed, monetary policy, interest rates, and inflation is quite limited and heterogeneous (Kumar et al., 2015; Binder, 2017a; Coibion et al., 2019; Coibion, Gorodnichenko et al., 2020), and that neither households’ nor firms’ expectations respond much to monetary policy announcements in low- inflation economies (Coibion, Gorodnichenko et al., 2020). Consistent with this literature, I find incomplete and hetero- geneous consumer knowledge of the March 3 rate cut, the Fed chair, and the inflation target.

Of the 52% of respondents who had heard news about the Federal Reserve in the past week, most (73%) knew that the Fed had cut interest rates, though 25% thought that the Fed had raised interest rates. The remaining five respondents de- scribed other news that they had heard about the Fed; one mentioned “repo operations are continuing” and the others were vague or uncertain (e.g., “Not sure, as I didn’t read the article. Something was going on.”) Overall, 38% of respon- dents knew that the Fed had cut rates.

I find that 79% of respondents select the correct Fed chair, compared to 70% in 2019 (Binder, 2020b) and 67% in 2017 (Binder & Rodrigue, 2018). The share who knew that the Fed’s inflation target is 2% increased to 44%, versus 32% in 2019 (Binder, 2020b) and 26% in 2017 (Binder & Rodrigue, 2018).10

Knowledge of the rate cut, the inflation target, and the Fed chair are moderately positively correlated with each other and depend on certain consumer characteristics (online appendix tables A.6 and A.7). For example, a numerate consumer is 22 percentage points more likely, and a stock owner 15 per- centage points more likely, to be aware of the rate cut.11 Print news readers are more likely to have heard of the rate cut, while TV news consumers are less likely. Binder (2017b) finds that newspapers are more likely to cover the Federal Reserve than are cable and network television. Neither atten- tion to nor concerns about coronavirus are associated with greater awareness of the rate cut. Knowledge of the inflation target and Fed chair is associated with similar characteristics but also positively associated with income.

in the other regressions. I do not find a statistically significant coefficient on S or the interaction in any case. It may be that the sample is too small or that the IP address-based proxy is too noisy.

10Coibion, Gorodnichenko, and Weber (2019) find that less than 20% of consumers guess that the inflation target is 2%, and almost 40% guess that the target is 10% or greater. My results are not directly comparable to those of Coibion et al., since I first ask respondents if they know the Fed’s target and ask for a guess only if they respond affirmatively. Among respondents who claim to know the Fed’s target, 11% report a target that is larger than 10%. Knowledge of the inflation target may be gradually increasing over time but nonetheless remains low.

11Among respondents who own stocks, 26% say they follow news about the stock market very closely. Following stock market news closely is also associated with greater awareness of the rate cut, though the effect is not statistically significant.

TABLE 3.—MACROECONOMIC EXPECTATIONS BY CONCERNS ABOUT CORONAVIRUS EFFECTS ON THE ECONOMY

Not Somewhat Very Concerned Concerned Concerned

Less unemployment 0.17 0.035 0.079 More unemployment 0.19 0.33 0.45 Expected inflation 2.04 3.16 3.35 Multiple of 5% inflation 0.4 0.44 0.47

The table summarizes twelve-month-ahead unemployment and inflation expectations for consumers reporting that they are not at all concerned, somewhat concerned, or very concerned about the effects of coronavirus on the US economy.

V. Macroeconomic Expectations

In the first round of expectations elicitation, mean and median inflation expectations are, respectively, 3.12% and 2%, with an interquartile range of 0% to 4%.12 “Don’t know” responses are given by 23.2%, and 44.7% of fore- casts are multiples of 5%—indicative of high uncertainty (see Binder, 2017c). Only 6.5% of respondents expect lower unemployment in twelve months; 57.4% expect around the same amount of unemployment, and 36.1% expect more un- employment.

As shown in table 3, concerns about coronavirus are as- sociated with more pessimistic unemployment expectations and higher inflation expectations. For example, mean infla- tion expectations are 2.0% for unconcerned consumers and 3.4% for very concerned consumers. This is consistent with recent research showing that consumer pessimism is associ- ated with higher inflation expectations.

A. Effects of Information about Monetary Policy

The Federal Reserve’s rate cut and announcement on March 3 could have affected consumer expectations in var- ious ways. On one hand, the Fed’s response may have sig- naled that the economic outlook was worse than consumers previously knew (the information channel of monetary pol- icy) (Nakamura & Steinsson, 2018). On the other hand, the rate cut itself, reassurance that “the fundamentals of the U.S. economy remain strong,” and the promise to “act as appro- priate to support the economy” may have reassured con- sumers, making them more optimistic. The statement that “our action … will help boost consumer confidence” may also have persuaded respondents to report more optimistic expectations. Yet another possibility is that the length and complexity of the statement may have discouraged respon- dents from reading it carefully or inhibited their compre- hension of the treatment. However, Coibion et al. (2019) found that providing consumers with the March or May 2018 FOMC statement—“written in the dense language that is typ- ical of central bank communications”—had similar effects on subjects’ inflation expectations as simpler information treatments, such as telling respondents the inflation target or

12Inflation forecasts of 50% or more in absolute value were recoded as “don’t know” responses. This accounted for 48 responses in the first round and 54 in the second round.

728 THE REVIEW OF ECONOMICS AND STATISTICS

FIGURE 2.—EXPECTATIONS AND REVISIONS BY KNOWLEDGE OF RATE CUT

Panels A and B show initial expectations of twelve-month-ahead unemployment for consumers who do not know or know that the Fed cut rates on March 3. Panels C through F show revisions of expectations of twelve-month-ahead inflation and unemployment after provision of information about the Fed rate cut on March 3, for consumers with or without prior knowledge of the rate cut.

recent inflation. Moreover, even respondents with lower in- come and education levels revised their expectations in re- sponse to those FOMC statements.

I examine possible effects of the rate cut and announce- ment in several ways. First, I compare the expectations of consumers with and without prior knowledge of the Fed’s rate cut. As discussed earlier, prior knowledge of the rate cut is associated with certain respondent characteristics, such as numeracy and stock ownership, which may also affect macroeconomic expectations. Macroeconomic expectations may also directly influence awareness of the rate cut; for ex- ample, consumers who were especially pessimistic about fu- ture unemployment might have deliberately sought out news about Federal Reserve policy. Second, I examine how re- spondents’ expectations change when I provide them with information about the rate cut. This information treatment is provided to all respondents, regardless of their observable or unobservable characteristics.

Panels A and B of figure 2 show that consumers with prior knowledge of the rate cut are more pessimistic about future unemployment.13 They also have higher inflation ex- pectations: the mean is 3.7% for consumers who know about the rate cut versus 2.8% for consumers who do not. When controlling for respondents’ observable characteristics, how-

13Online appendix figure A.1 replicates figure 2, omitting respondents who took the survey in less than four minutes, who might not have taken the time to read the full text of the treatment. The figure is nearly identical.

ever, the differences in macroeconomic expectations by prior knowledge of the rate cut are not statistically significant. Panels C and D summarize revisions to unemployment ex- pectations following the treatment for respondents with and without prior knowledge of the rate cut. About 80% of respon- dents with prior knowledge and 71% without prior knowledge make no revision to their unemployment expectations. Condi- tional on revising, 60% of respondents with prior knowledge and 47% without prior knowledge become more optimistic about future unemployment.

Panels E and F of figure 2 summarize qualitative revi- sions to inflation expectations. About 64% of respondents with prior knowledge of the rate cut and 40% without prior knowledge make no revision. Conditional on revising, 73% of respondents with prior knowledge and 58% of respon- dents without prior knowledge revised down. Quantitative inflation expectations, on aggregate, did not respond to the treatment: the pretreatment mean and median were 3.2% and 2%, while the posttreatment mean and median were 2.9% and 2%. However, this lack of aggregate response reflects the heterogeneity of individuals’ responses. Online appendix figure A.2 shows kernel density estimates of quantitative re- visions to inflation expectations for respondents with and without prior knowledge of the rate cut. Revisions are cen- tered around 0 but with mass on either side, including extra mass at 5% and −5% from uncertain consumers who select “round” forecasts both before and after the treatment (Binder, 2017c).

CORONAVIRUS FEARS AND MACROECONOMIC EXPECTATIONS 729

Online appendix table A.8 summarizes inflation expec- tations revisions based on unemployment expectations revi- sions. Among consumers who became more optimistic about unemployment following information about the Fed’s re- sponse, 59% revised their inflation expectations down and only 11% revised their inflation expectations up. In con- trast, for consumers who became more pessimistic about unemployment—who interpreted the Fed’s response as a sig- nal of the poor state of the economy—28% revised their infla- tion expectations down and 47% revised up. This is consistent with what Andre et al. (2019) call the “good-bad-heuristic”: many consumers consider both inflation and unemployment “bad” and therefore expect them to comove (also see Kam- dar, 2019, and Coibion, Gorodnichenko et al., 2020). Andre et al. find that consumers’ predictions about how unemploy- ment will respond to various shocks, including interest rate shocks, are generally in line with experts’ predictions, but consumers’ predictions about inflation are not.

It is interesting to note that consumer disagreement about inflation did not decline from the first to the second elici- tation. Pretreatment and posttreatment disagreement about inflation was identical, with an interquartile range of 0% to 4% in both cases.14 The signal about the Fed’s March 3 an- nouncement and rate cut appears to be an exception to the finding in Coibion et al. (2019) that “there is in general lit- tle variation in terms of how different types of consumers respond to most signals: conditional on their initial beliefs (which do differ across groups), the way they respond to a common signal is broadly similar. This pattern in updating yields declines in disagreement across agents after each treat- ment.” The COVID-19 crisis and related policy responses are rare events, associated with high uncertainty, making it diffi- cult for consumers to understand how to update their beliefs about the future (Gallagher, 2014; Mackowiak & Wiederholt, 2018). As a result, there is more variation in how consumers respond to the Fed’s March 3 announcement compared to the information treatments in Coibion et al. (2019).

VI. Discussion and Conclusion

As of March 5 and 6, 2020, many consumers were con- cerned about the potential effects of coronavirus on their health and finances and on the US economy. These concerns were associated with more pessimistic unemployment expec- tations and higher inflation expectations. My results suggest that possible increases in consumer inflation expectations in the next few months of the COVID-19 crisis might best be interpreted as increases in pessimism rather than as improved expecations of aggregate demand.

The Federal Reserve’s emergency rate cut on March 3 was relatively newsworthy, and 38% of consumers became aware

14Coibion et al. (2019) note that higher moments of inflation expectations are sensitive to outliers and suggest using robust measures of disagreement in place of variance or standard deviation. The interquartile range is a robust measure of disagreement. Another robust measure, the median absolute deviation, is also identical pre- and posttreatment.

of the cut. But consumers had mixed responses to learning about the Fed’s announcement, and disagreement about in- flation expectations did not decline. The fact that fewer than half of consumers were aware of such a major policy move and may have had trouble interpreting it points to large chal- lenges in the central bank’s efforts to communicate with the general public. These challenges will become especially im- portant to address with the federal funds rate at the zero lower bound.

Larger-scale surveys will be helpful in the upcoming months as economic and public health conditions rapidly evolve, and especially as consumers experience more direct effects of the COVID-19 crisis on their lives. Panel surveys to facilitate analysis of the persistence of effects on beliefs and expectations will be especially valuable.15 Shortly after this survey, long lines in grocery stores and shortages of toilet pa- per and other items became widespread. This may exacerbate pessimism and high inflation expectations, as D’Acunto et al. (2019, 2020) find that many consumers extrapolate from their grocery shopping experiences to form inflation expectations. Job insecurity and job loss, illness, school and business clo- sures, and future fiscal and monetary policy responses may have notable effects on expectations and beliefs.

15In more normal times, information treatments about inflation and Fed- eral Reserve policy have only mildly persistent effects on consumer expec- tations (Coibion et al., 2019).

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