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| Fed Warns of Financial Risks as Coronavirus Downturn Persists | Fed Warns of Financial Risks as Coronavirus Downturn Persists |
| (8 days later) | |
| The coronavirus outbreak upended markets in March, and the Federal Reserve said on Friday that the financial system had exacerbated that turmoil and warned that highly indebted businesses remained a vulnerability that could hurt the broader economy. | The coronavirus outbreak upended markets in March, and the Federal Reserve said on Friday that the financial system had exacerbated that turmoil and warned that highly indebted businesses remained a vulnerability that could hurt the broader economy. |
| The financial system “amplified the shock” as short-term funding markets in particular seized up in March, the Fed said. Some hedge funds were “severely affected” and “reportedly” contributed to market dislocations, according to the central bank’s financial stability report. | The financial system “amplified the shock” as short-term funding markets in particular seized up in March, the Fed said. Some hedge funds were “severely affected” and “reportedly” contributed to market dislocations, according to the central bank’s financial stability report. |
| The Fed used the annual report to sound a warning bell on persistent weaknesses that have the potential to worsen the fallout in markets — which could then spill back into the rest of the economy — as coronavirus lockdowns slow growth, spurring job losses and causing consumers to pull back spending. | The Fed used the annual report to sound a warning bell on persistent weaknesses that have the potential to worsen the fallout in markets — which could then spill back into the rest of the economy — as coronavirus lockdowns slow growth, spurring job losses and causing consumers to pull back spending. |
| Businesses went into the crisis highly indebted, the Fed pointed out. As they miss out on sales and income, they may default on their debts. That could have knock-on effects: Credit losses could pair with low interest rates to hurt profitability at banks, which entered the crisis well capitalized and are, at least for now, holding up and lending steadily. | Businesses went into the crisis highly indebted, the Fed pointed out. As they miss out on sales and income, they may default on their debts. That could have knock-on effects: Credit losses could pair with low interest rates to hurt profitability at banks, which entered the crisis well capitalized and are, at least for now, holding up and lending steadily. |
| “We will be monitoring closely for solvency stresses among highly leveraged business borrowers, which could increase the longer the Covid pandemic persists,” Lael Brainard, a Fed governor, said in a statement accompanying the release. She noted that the Fed’s early interventions “have been effective in resolving liquidity stresses.” | “We will be monitoring closely for solvency stresses among highly leveraged business borrowers, which could increase the longer the Covid pandemic persists,” Lael Brainard, a Fed governor, said in a statement accompanying the release. She noted that the Fed’s early interventions “have been effective in resolving liquidity stresses.” |
| Updated July 7, 2020 | |
| The coronavirus can stay aloft for hours in tiny droplets in stagnant air, infecting people as they inhale, mounting scientific evidence suggests. This risk is highest in crowded indoor spaces with poor ventilation, and may help explain super-spreading events reported in meatpacking plants, churches and restaurants. It’s unclear how often the virus is spread via these tiny droplets, or aerosols, compared with larger droplets that are expelled when a sick person coughs or sneezes, or transmitted through contact with contaminated surfaces, said Linsey Marr, an aerosol expert at Virginia Tech. Aerosols are released even when a person without symptoms exhales, talks or sings, according to Dr. Marr and more than 200 other experts, who have outlined the evidence in an open letter to the World Health Organization. | |
| Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days. | Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days. |
| Scientists around the country have tried to identify everyday materials that do a good job of filtering microscopic particles. In recent tests, HEPA furnace filters scored high, as did vacuum cleaner bags, fabric similar to flannel pajamas and those of 600-count pillowcases. Other materials tested included layered coffee filters and scarves and bandannas. These scored lower, but still captured a small percentage of particles. | Scientists around the country have tried to identify everyday materials that do a good job of filtering microscopic particles. In recent tests, HEPA furnace filters scored high, as did vacuum cleaner bags, fabric similar to flannel pajamas and those of 600-count pillowcases. Other materials tested included layered coffee filters and scarves and bandannas. These scored lower, but still captured a small percentage of particles. |
| A commentary published this month on the website of the British Journal of Sports Medicine points out that covering your face during exercise “comes with issues of potential breathing restriction and discomfort” and requires “balancing benefits versus possible adverse events.” Masks do alter exercise, says Cedric X. Bryant, the president and chief science officer of the American Council on Exercise, a nonprofit organization that funds exercise research and certifies fitness professionals. “In my personal experience,” he says, “heart rates are higher at the same relative intensity when you wear a mask.” Some people also could experience lightheadedness during familiar workouts while masked, says Len Kravitz, a professor of exercise science at the University of New Mexico. | A commentary published this month on the website of the British Journal of Sports Medicine points out that covering your face during exercise “comes with issues of potential breathing restriction and discomfort” and requires “balancing benefits versus possible adverse events.” Masks do alter exercise, says Cedric X. Bryant, the president and chief science officer of the American Council on Exercise, a nonprofit organization that funds exercise research and certifies fitness professionals. “In my personal experience,” he says, “heart rates are higher at the same relative intensity when you wear a mask.” Some people also could experience lightheadedness during familiar workouts while masked, says Len Kravitz, a professor of exercise science at the University of New Mexico. |
| The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth. | The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth. |
| The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave. | The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave. |
| So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement. | So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement. |
| Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks. | Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks. |
| A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study. | A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study. |
| If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.) | If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.) |
| If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others. | If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others. |
| The Fed’s report is the most detailed glimpse yet at how the central bank understands the financial gyrations that took hold as coronavirus cases began surfacing in America. | The Fed’s report is the most detailed glimpse yet at how the central bank understands the financial gyrations that took hold as coronavirus cases began surfacing in America. |
| Among the areas the Fed flagged: | Among the areas the Fed flagged: |
| Even the market for Treasury securities — the deepest and most liquid in the world — ceased to function normally as investors became attuned to the economic risk and cashed out their holdings. | Even the market for Treasury securities — the deepest and most liquid in the world — ceased to function normally as investors became attuned to the economic risk and cashed out their holdings. |
| “While the financial regulatory reforms adopted since 2008 have substantially increased the resilience of the financial sector, the financial system nonetheless amplified the shock, and financial sector vulnerabilities are likely to be significant in the near term,” the report said. | “While the financial regulatory reforms adopted since 2008 have substantially increased the resilience of the financial sector, the financial system nonetheless amplified the shock, and financial sector vulnerabilities are likely to be significant in the near term,” the report said. |
| In March, “funding markets proved less fragile than during the 2007-09 financial crisis. Nonetheless, significant strains emerged, and emergency Federal Reserve actions were required to stabilize short-term funding markets.” | In March, “funding markets proved less fragile than during the 2007-09 financial crisis. Nonetheless, significant strains emerged, and emergency Federal Reserve actions were required to stabilize short-term funding markets.” |
| In the Treasury market — where the Fed has bought securities at a rapid pace since mid-March to restore functioning — the difference between selling prices and buyer asking prices has declined to more normal levels, but “some measures, such as market depth, have shown only modest signs of improvement.” | In the Treasury market — where the Fed has bought securities at a rapid pace since mid-March to restore functioning — the difference between selling prices and buyer asking prices has declined to more normal levels, but “some measures, such as market depth, have shown only modest signs of improvement.” |
| As investors pulled cash from money market mutual funds and the market for short-term business debt looked shaky a more surprising weakness surfaced in the market for Treasury bonds, especially older ones. Speculation has been rampant that hedge funds contributed to the turmoil, and the Fed acknowledged that in its report. | As investors pulled cash from money market mutual funds and the market for short-term business debt looked shaky a more surprising weakness surfaced in the market for Treasury bonds, especially older ones. Speculation has been rampant that hedge funds contributed to the turmoil, and the Fed acknowledged that in its report. |
| Some hedge funds buy and sell securities frequently to make small amounts of money that add up over a large number of trades. They are forced to sell their holdings if markets become hard to trade in, which “can lead to a rapid unraveling of market liquidity under certain circumstances,” the report said. | Some hedge funds buy and sell securities frequently to make small amounts of money that add up over a large number of trades. They are forced to sell their holdings if markets become hard to trade in, which “can lead to a rapid unraveling of market liquidity under certain circumstances,” the report said. |
| “The concentration of hedge fund leverage has increased markedly,” it said, and funds “may have to sell large amounts of assets to meet margin calls or reduce portfolio risk during periods of market stress.” | “The concentration of hedge fund leverage has increased markedly,” it said, and funds “may have to sell large amounts of assets to meet margin calls or reduce portfolio risk during periods of market stress.” |
| The Fed jumped in to ease the strains, rolling out a series of emergency lending facilities. | The Fed jumped in to ease the strains, rolling out a series of emergency lending facilities. |
| “Effectively, the ability of creditworthy households, businesses, and state and local governments to borrow, even at elevated rates, was threatened,” the Fed said. Together with the Treasury it “took a series of steps to support the flow of credit to households, businesses, and communities.” | “Effectively, the ability of creditworthy households, businesses, and state and local governments to borrow, even at elevated rates, was threatened,” the Fed said. Together with the Treasury it “took a series of steps to support the flow of credit to households, businesses, and communities.” |
| Corporations went into the current crisis with huge debt loads, a vulnerability that threatens to continue. | Corporations went into the current crisis with huge debt loads, a vulnerability that threatens to continue. |
| “Economic activity is contracting sharply, and the associated reduction in earnings and increase in credit needed to bridge the downturn will expand the debt burden and default risk of a highly leveraged business sector,” the report said. | “Economic activity is contracting sharply, and the associated reduction in earnings and increase in credit needed to bridge the downturn will expand the debt burden and default risk of a highly leveraged business sector,” the report said. |
| “Widespread downgrades of bonds to speculative-grade ratings could lead investors to accelerate the sale of downgraded bonds, possibly generating market dislocation and downward price pressures in a segment of the corporate bond market known to exhibit relatively low liquidity,” it warned. | “Widespread downgrades of bonds to speculative-grade ratings could lead investors to accelerate the sale of downgraded bonds, possibly generating market dislocation and downward price pressures in a segment of the corporate bond market known to exhibit relatively low liquidity,” it warned. |
| “Defaults on leveraged loans ticked up in February and March and are likely to continue to increase,” it said of loans to already-indebted companies | “Defaults on leveraged loans ticked up in February and March and are likely to continue to increase,” it said of loans to already-indebted companies |
| The Fed noted that stock prices had “swung widely,” and said other assets could be in for lower prices. | The Fed noted that stock prices had “swung widely,” and said other assets could be in for lower prices. |
| “Asset prices remain vulnerable to significant declines should the pandemic worsen, the economic fallout prove more adverse or financial system strains re-emerge,” the Fed warned. | “Asset prices remain vulnerable to significant declines should the pandemic worsen, the economic fallout prove more adverse or financial system strains re-emerge,” the Fed warned. |
| “The severe disruptions in economic activity following the outbreak could reduce house prices by bringing down household incomes and restricting access to mortgage credit,” the report said, though a decline in supply could limit that effect. | “The severe disruptions in economic activity following the outbreak could reduce house prices by bringing down household incomes and restricting access to mortgage credit,” the report said, though a decline in supply could limit that effect. |