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Stocks Waver as Powell and Mnuchin Face Lawmakers: Live Updates Stocks Waver as Powell and Mnuchin Face Lawmakers: Live Updates
(32 minutes later)
In their first appearance before lawmakers on Tuesday, Treasury Secretary Steven Mnuchin and the Federal Reserve chair, Jerome H. Powell, were grilled over whether their efforts to shore up the economy were doing enough to help workers and smaller companies, with lawmakers warning that they should not help large corporations alone. The United States economy faces irreparable damage from the fallout of the coronavirus pandemic, the nation’s top economic policymakers warned lawmakers on Tuesday, as the Congress and the White House grapple with how to restart business activity and how much additional government support is needed.
“From what we know so far, it does not appear that this administration or the Federal Reserve are making workers their priority,” Senator Sherrod Brown, the highest-ranking Democrat on the Senate Banking Committee, said in his opening statement at the first oversight hearing on how money from the CARES Act is being used to support the Fed and the Treasury’s economic rescue efforts. In a joint appearance before lawmakers, Treasury Secretary Steven Mnuchin and the Federal Reserve chair, Jerome H. Powell, offered a stark assessment of the fragile state of the economy, warning of more severe job losses in the coming months. But they offered contrasting views of how best to buttress the economy, with Mr. Powell suggesting that more fiscal support to states and businesses might be needed to avoid permanent economic damage and Mr. Mnuchin suggesting that, without an expeditious reopening, the economy might never fully recover.
The Fed is in the process of rolling out a series of emergency lending programs to keep credit flowing into the economy. “There is the risk of permanent damage” if states delay reopening, Mr. Mnuchin told members of the Senate Banking Committee.
More recently, it has announced five new or revamped programs that will be backed by $195 billion in funding, focused on large corporations, the municipal bond market, midsize businesses and asset-backed securities, which are essentially bundles of loans built on students loans, credit cards and other types of debt. The hearing, which was held by video conference, came at a pivotal moment, as Congress and the White House are beginning to debate the outlines of a second major economic relief bill and potentially inject trillions of additional taxpayer dollars into the economy.
Of those programs, only a portion of one of the corporate credit facilities is up and running. The various facilities have taken time to design, because they are legally complex and have never before been tried. Mr. Mnuchin’s comments reflect the change in tone among administration officials, who have begun trying to shift the economic discussion away from more financial support to allowing states to reopen. In his opening remarks, Mr. Mnuchin said “it is so important to begin bringing people back to work in a safe way.” The Trump administration has said that providing liability protection for businesses against lawsuits from workers who get sick is a priority in future legislation.
Lawmakers repeatedly urged Mr. Mnuchin and Mr. Powell to get the midsize business “Main Street” facility up quickly. Mr. Powell faced questions over why the corporate programs were helping shakier large companies. Mr. Powell sounded a more cautious tone, explaining that a full recovery will not come until the health crisis is resolved.
“You’ve pointed out that most of the people being hurt are those earning less than $40,000 a year,” said Senator Chris Van Hollen, a Maryland Democrat. “It’s not clear to me how putting money into junk bonds is helping Main Street.” “The No. 1 thing, of course, is people believing that it’s safe to go back to work, and that’s about having a sensible, thoughtful reopening of the economy, something that we all want — and something that we’re in the early stages of now,” Mr. Powell said. “It will be a combination of getting the virus under control, development of therapeutics, development of a vaccine.”
Mr. Powell said the Fed had taken a “limited, narrow” set of steps to allow recently downgraded companies and high-yield exchange traded funds into the Fed’s programs to avoid creating a sharp drop-off between investment grade and lower-rated debt. And he noted that state and local governments, in particular, could slow the economic recovery if they laid off workers amid budget crunches, suggesting that Congress might need to funnel more money to localities.
The Fed generally tries to steer clear of fiscal policy, leaving it to Congress and the White House. But Mr. Powell has repeatedly warned over the past two weeks that if the coronavirus economic slump is long, additional policy support may be needed to get the economy through unscathed.
He was careful to avoid giving Congress explicit advice and made sure to cushion his suggestions as a conditionality — that fiscal policymakers “may” need to do more if the recovery takes time — but he reiterated Tuesday that it was crucial for policymakers to not pull the plug too quickly.
“My concern has been the risk and possibility of longer-run damage to the economy,” Mr. Powell said, noting that the policymakers will have information on whether more is needed “fairly quickly here” as economic reopening starts and it becomes clearer how quickly consumers will return to stores and workers to payroll.
Jerome H. Powell, the Federal Reserve chair, suggested that the central bank might expand its program to buy municipal debt and agreed that state and local governments could slow the economic recovery if they laid off workers amid budget crunches.Jerome H. Powell, the Federal Reserve chair, suggested that the central bank might expand its program to buy municipal debt and agreed that state and local governments could slow the economic recovery if they laid off workers amid budget crunches.
“We have the evidence of the global financial crisis and the years afterward, where state and local government layoffs and lack of hiring did weigh on economic growth,” Mr. Powell said while testifying before the Senate Banking Committee, in response to a question from Senator Bob Menendez, Democrat of New Jersey.“We have the evidence of the global financial crisis and the years afterward, where state and local government layoffs and lack of hiring did weigh on economic growth,” Mr. Powell said while testifying before the Senate Banking Committee, in response to a question from Senator Bob Menendez, Democrat of New Jersey.
“I think something like 13 percent of the work force is in state and local government,” Mr. Powell said in response to another question, pointing out that balanced budget requirements can mean that “when revenue goes down sharply, it can mean job cuts and service cuts.”“I think something like 13 percent of the work force is in state and local government,” Mr. Powell said in response to another question, pointing out that balanced budget requirements can mean that “when revenue goes down sharply, it can mean job cuts and service cuts.”
The Fed announced in early April that it would begin to buy municipal debt from states and some counties and cities. Those programs do not offer grants, so they are no panacea, but they could help those entities to issue debt to temporarily fund themselves.
Mr. Powell pointed out that some states with smaller populations only have one eligible borrower, because the Fed’s program is only available to larger cities and counties. He hinted that the Fed might widen out its program to make additional entities eligible in those places.
“We’re looking at ways to make sure that in those states, we address the need of, potentially, another borrower or two,” he said.
Appearing before Congress, Treasury Secretary Steven Mnuchin and the Federal Reserve chair, Jerome H. Powell, said the economy remained in a fragile state and that they were working to ensure that aid was getting to businesses and households.
Mr. Powell told lawmakers that the Fed was “committed to using our full range of tools to support the economy,” adding that “we recognize that these actions are only a part of a broader public-sector response.”
Mr. Mnuchin said the Treasury was willing to take some risks with the $454 billion Congress allocated as part of the CARES Act, and “take losses in certain scenarios.”
Mr. Mnuchin predicted the economy would rebound starting later this year, as businesses reopened, but Mr. Powell cautioned that the recovery could take longer, particularly in certain sectors that involve large group gatherings, such as hotels, sporting events and airplanes. Both acknowledged that the economy was likely to weaken before a turnaround begins, and they wrestled with the question of whether the fiscal and policy response has been enough.
“This is the biggest shock we’ve seen in living memory, and the question looms in the air — of is it enough?” Mr. Powell said, explaining that the initial response to the coronavirus crisis by Congress and the Fed had been historically large and fast.
The testimony on Tuesday was the first accountability hearing since Congress handed the Fed and Treasury hundreds of billions of dollars to help rescue the U.S. economy from coronavirus-induced shutdowns. The money was intended to offer a bridge to companies and state and local governments so that they could get through the falloff in business activity brought about by the virus.
But the efficacy of those programs remains an open question. Concerns have been growing that the Treasury’s desire to avoid taking any losses may hamstring the ability of the Fed to actually get money to companies that are in desperate need of financial help.
Mr. Mnuchin warned that the economy may never fully recover if states extend their shutdowns for months — citing a risk of “permanent damage” — comments that reflect a change in focus by the Trump administration, which has tried to shift the economic discussion away from more financial support to allowing states to reopen.Mr. Mnuchin warned that the economy may never fully recover if states extend their shutdowns for months — citing a risk of “permanent damage” — comments that reflect a change in focus by the Trump administration, which has tried to shift the economic discussion away from more financial support to allowing states to reopen.
Mr. Powell warned that the economy could face long-term damage if the policy response is not forceful enough, and reiterated that the economy may need more help to make it through the coronavirus period without lasting scars. Lawmakers grilled Mr. Mnuchin and Mr. Powell over whether their efforts to shore up the economy were doing enough to help workers and smaller companies, and warned that they should not help large corporations alone. Lawmakers repeatedly urged the pair to get the midsize business “Main Street” lending program up quickly.
Mr. Powell warned that the economy could face long-term damage if the policy response was not forceful enough, and reiterated that the economy might need more help to make it through the coronavirus period without lasting scars.
“There is clear evidence that when you have a situation where people are unemployed for long periods of time, that can permanently weigh on their careers and their ability to go back to work,” he said, and that can weigh on the economy for years. “Equally so with small and medium-sized businesses, which are the jobs machine of our great economy.”“There is clear evidence that when you have a situation where people are unemployed for long periods of time, that can permanently weigh on their careers and their ability to go back to work,” he said, and that can weigh on the economy for years. “Equally so with small and medium-sized businesses, which are the jobs machine of our great economy.”
Mr. Mnuchin, who previously said he expected that the Treasury would return all $454 billion from Congress, changed that benchmark on Tuesday, saying the “base case” now is that the government will lose money.Mr. Mnuchin, who previously said he expected that the Treasury would return all $454 billion from Congress, changed that benchmark on Tuesday, saying the “base case” now is that the government will lose money.
“Our intention is that we expect to take some losses on these facilities,” he said. Some lawmakers have been pressing the Treasury and Fed to deploy its capital aggressively and not worry about taking losses. “Our intention is that we expect to take some losses on these facilities,” he said. Some lawmakers have been pressing the Treasury and the Fed to deploy its capital aggressively and not worry about taking losses.
Google, one of the first companies to allow employees to work from home as the coronavirus started to spread, is working on a plan to reopen its workplaces with staff rotating into the office once or twice a week Facebook announced a new online retail initiative on Tuesday, aimed at spurring digital commerce as small businesses and retailers grapple with the economic devastation from the coronavirus.
Sundar Pichai, chief executive of Google’s parent company Alphabet, said on the Vergecast podcast that the company plans to start reopening conservatively once local ordinances allow it by bringing back around 15 percent of its staff to the office and rotate employees to come in once or twice a week. The new product, called Facebook Shops, lets users sell goods and services online through storefronts hosted by Facebook and Instagram. The goal, said Mark Zuckerberg, Facebook’s chief executive, was to make people feel more comfortable buying things online and to rejuvenate the mom-and-pop businesses struggling to stay afloat in the pandemic.
By the end of the year, he said he expects Google’s offices to return to around 20 to 30 percent capacity, allowing about 60 percent of its workers to come into the office once a week. Mr. Zuckerberg said the effort includes improving online checkout for Facebook Shops, which will occur inside Facebook or Instagram instead of redirecting users to an outside website. Customers will be able to purchase items without leaving the app and can pay faster using their saved credit card information with Facebook Pay, another of the company’s e-commerce products.
In a recent study of 86,000 American small businesses conducted by Facebook, roughly one third of those surveyed had closed, the social network found.
“Small businesses are particularly important for us,” Mr. Zuckerberg said in an interview with Mike Isaac. “They’re the vast majority of our advertisers and make up the biggest portion of our revenue.” More than 160 million small and medium-sized businesses with fewer than 500 employees use Facebook to promote their operations, with 7 million of those also purchasing paid advertising products from the social network.
Mr. Zuckerberg said he had pushed Facebook’s employees to move quickly on the new commerce product, especially given how quickly the virus ravaged businesses. He said he believed it would be difficult for some time.
“I think this is a really tough period for a lot of folks,” he said. “Long after we’re worried about getting the virus, I expect that the economic fallout will continue to exist.”
Google, one of the first companies to allow employees to work from home as the coronavirus started to spread, is developing a plan to reopen its workplaces with staff rotating into the office once or twice a week
Sundar Pichai, chief executive of Google’s parent company Alphabet, said on the Vergecast podcast that the company planned to start reopening conservatively once local ordinances allowed it by bringing back around 15 percent of its staff to the office and rotate employees to come in once or twice a week.
By the end of the year, he said he expected Google’s offices to return to around 20 to 30 percent capacity, allowing about 60 percent of its workers to come into the office once a week.
Public companies have returned less than half of the funds they received through a troubled federal loan program meant to stabilize small businesses.Public companies have returned less than half of the funds they received through a troubled federal loan program meant to stabilize small businesses.
The loans to publicly-traded firms drew scrutiny from members of the public and policymakers who said the money would have been put to better use with smaller businesses. The Treasury Department and the Small Business Administration gave public companies until Monday to decide whether they would return their loans or face possible sanctions if they had been able to get funds from other sources. The loans to publicly traded firms drew scrutiny from members of the public and policymakers who said the money would have been put to better use with smaller businesses. The Treasury Department and the Small Business Administration gave public companies until Monday to decide whether they would return their loans or face possible sanctions if they had been able to get funds from other sources.
As of Monday night, about $512 million of the roughly $1.52 billion in loans disclosed by public companies had been returned, including some of the largest that had been disclosed. Additional companies may disclose their decision to return their loans in the coming days.As of Monday night, about $512 million of the roughly $1.52 billion in loans disclosed by public companies had been returned, including some of the largest that had been disclosed. Additional companies may disclose their decision to return their loans in the coming days.
More than 440 public companies have disclosed receiving the loans since early April. At least 58 of them, from the burger chain Shake Shack to the auto dealer Penske Automotive Group, have given the funds back.More than 440 public companies have disclosed receiving the loans since early April. At least 58 of them, from the burger chain Shake Shack to the auto dealer Penske Automotive Group, have given the funds back.
Even as companies returned the loans, more public companies received them in the program’s second round. That group included companies like Ark Restaurants and The ONE Group, which runs the STK chain of steakhouses. Both firms said they could not have accessed capital elsewhere. Even as companies returned the loans, more public companies received them in the program’s second round. That group included companies like Ark Restaurants and The ONE Group, which runs the STK chain of steakhouses. Both firms said they could not have gained access to capital elsewhere.
Walmart, the nation’s largest retailer, said sales in the first quarter soared more than 10 percent in the United States as customers flocked to its stores and online to buy food and health care products during the coronavirus pandemic.Walmart, the nation’s largest retailer, said sales in the first quarter soared more than 10 percent in the United States as customers flocked to its stores and online to buy food and health care products during the coronavirus pandemic.
Deemed an essential business, Walmart has been able to keep its stores and e-commerce network operating every day of the crisis, giving it an advantage over some competitors who have been forced to close.Deemed an essential business, Walmart has been able to keep its stores and e-commerce network operating every day of the crisis, giving it an advantage over some competitors who have been forced to close.
Across the company, including its international business and Sam’s Club unit, operating income increased 5.6 percent to $5.2 billion from a year earlier, while revenue increased 8.6 percent to $134.6 billion.Across the company, including its international business and Sam’s Club unit, operating income increased 5.6 percent to $5.2 billion from a year earlier, while revenue increased 8.6 percent to $134.6 billion.
E-commerce sales increased 74 percent, double the company’s typical online growth rate, as Walmart shipped more items from its stores to customers’ homes and expanded its curbside pickup business.E-commerce sales increased 74 percent, double the company’s typical online growth rate, as Walmart shipped more items from its stores to customers’ homes and expanded its curbside pickup business.
The company also said on Tuesday it had hired more than 235,000 new employees to handle the surging demand and paid more than $900 million in bonuses and higher wages.The company also said on Tuesday it had hired more than 235,000 new employees to handle the surging demand and paid more than $900 million in bonuses and higher wages.
The S&P 500 was flat on Tuesday, as markets regrouped after Wall Street’s biggest daily gain in about 6 weeks. The S&P 500 was flat on Tuesday, as markets regrouped after Wall Street’s biggest daily gain in about six weeks.
Investors were watching the Federal Reserve chair, Jerome H. Powell, testify before Congress, where he told lawmakers that the central bank will use its “full range of tools” to support the economy as it reels from the coronavirus pandemic. Treasury Secretary Steven Mnuchin was also testifying on how the $500 billion in stimulus funding has been managed so far. Investors were watching the Federal Reserve chair, Jerome H. Powell, testify before Congress, where he told lawmakers that the central bank would use its “full range of tools” to support the economy as it reels from the coronavirus pandemic. Treasury Secretary Steven Mnuchin also testified on how the $500 billion in stimulus funding had been managed so far.
The drop followed a jump of more than 3 percent in major Wall Street indexes on Monday, as a drug company, Moderna, said that early testing of its coronavirus vaccine on a small group of people had shown promising results. Investors also focused on comments from Mr. Powell, who said that the central bank could do more to help the American economy.The drop followed a jump of more than 3 percent in major Wall Street indexes on Monday, as a drug company, Moderna, said that early testing of its coronavirus vaccine on a small group of people had shown promising results. Investors also focused on comments from Mr. Powell, who said that the central bank could do more to help the American economy.
Other negative news began to sink in on Tuesday, including more signs of rising tensions between the United States and China. Investors also were cheered on Monday after Germany backed the idea of collective European debt to help countries hit hardest by the outbreak, but on Tuesday, the lack of details and the prospect of a long and slow recovery weighed on sentiment.Other negative news began to sink in on Tuesday, including more signs of rising tensions between the United States and China. Investors also were cheered on Monday after Germany backed the idea of collective European debt to help countries hit hardest by the outbreak, but on Tuesday, the lack of details and the prospect of a long and slow recovery weighed on sentiment.
For young adults entering the job market, or early in their working life, this is a particularly anxious time. Sephora, the cosmetics chain known for bustling stores where shoppers typically touch and try its products, said on Tuesday that it planned to reopen more than 70 stores on May 22, with many locations in Georgia, Texas and Tennessee. As part of a set of new protocols, it will not offer services like makeovers, testers will be for display only and returned products will be destroyed.
A large body of research — along with the experience of those who came of age in the last recession — shows that starting a career during an economic crisis can mean a lasting disadvantage. Wages, opportunities and confidence in the workplace may never fully recover.
Jesse Rothstein of the University of California, Berkeley, followed college graduates who entered the labor market after the 2008 financial crisis. By 2018, those who had landed jobs in 2010 and 2011 had a lower employment rate than people at the same age who graduated before the recession hit, and those working earned less.
College students who graduated into a recession 40 years ago experienced similar problems. And young people without a college degree are at an even greater disadvantage.
Sephora, the cosmetics chain known for bustling stores where shoppers typically touch and try its products, said on Tuesday that it plans to reopen more than 70 stores on May 22, with many locations in Georgia, Texas and Tennessee. As part of a set of new protocols, it will not offer services like makeovers, testers will be for display only and returned products will be destroyed.
Kohl’s, the midpriced apparel and accessories chain, said on Tuesday that its revenue fell 41 percent in the first quarter to $2.4 billion. It also reported a net loss of $541 million. The retailer said that it had reopened about half of its 1,100 locations since May 4.Kohl’s, the midpriced apparel and accessories chain, said on Tuesday that its revenue fell 41 percent in the first quarter to $2.4 billion. It also reported a net loss of $541 million. The retailer said that it had reopened about half of its 1,100 locations since May 4.
It’s over for Pier 1 Imports. The home goods retailer, which filed for bankruptcy protection in February, announced Tuesday that it would liquidate its business. The company had closed its stores in March because of the pandemic, but was still hoping to find a buyer to keep going. Pier 1 said that as soon as it could open stores after government-mandated lockdowns lift, it would sell its remaining inventory and assets. It’s over for Pier 1 Imports. The home goods retailer, which filed for bankruptcy protection in February, announced Tuesday that it would liquidate its business. The company had closed its stores in March because of the pandemic, but was still hoping to find a buyer to keep going. Pier 1 said that it would sell its remaining inventory and assets as soon as it could open stores after government-mandated lockdowns lift.
Thai Airways, Thailand’s flagship carrier, announced on Tuesday that it would go through a reorganization in bankruptcy court. The airline, which is majority owned by the government, stopped all flights in April in response to travel restrictions to limit the spread of the virus. The government is stepping in to help the airline restructure so that it doesn’t go bankrupt and cost the jobs of 22,000 people, Prime Minister Prayuth Chan-ocha told reporters. Thai Airways, Thailand’s flagship carrier, announced on Tuesday that it would reorganize in bankruptcy court. The airline, which is majority owned by the government, stopped all flights in April in response to travel restrictions to limit the spread of the virus. The government is stepping in to help the airline restructure so that it does not go bankrupt and cost the jobs of 22,000 people, Prime Minister Prayuth Chan-ocha told reporters.
A prolonged global recession is the top near-term worry among leaders in risk management, according to a report published on Tuesday by the World Economic Forum. The report relied on surveys of 350 risk professionals, who also listed high unemployment, another outbreak and protectionism among their fears in the next 18 months.A prolonged global recession is the top near-term worry among leaders in risk management, according to a report published on Tuesday by the World Economic Forum. The report relied on surveys of 350 risk professionals, who also listed high unemployment, another outbreak and protectionism among their fears in the next 18 months.
Reporting was contributed by Jeanna Smialek, Jim Tankersley, Alan Rappeport, Deborah Solomon, Michael Corkery, Alexandra Stevenson, Eduardo Porter, Daisuke Wakabayashi, David Yaffe-Bellany, Hisako Ueno, Sapna Maheshwari, David McCabe, Ben Dooley, Carlos Tejada, Maria Abi-Habib, Keith Bradsher, Kate Conger, Rich Barbieri, Mohammed Hadi and Gregory Schmidt. Reporting was contributed by Jeanna Smialek, Jim Tankersley, Alan Rappeport, Deborah Solomon, Michael Corkery, Mike Isaac, Alexandra Stevenson, Eduardo Porter, Daisuke Wakabayashi, David Yaffe-Bellany, Hisako Ueno, Sapna Maheshwari, David McCabe, Ben Dooley, Carlos Tejada, Maria Abi-Habib, Keith Bradsher, Kate Conger, Rich Barbieri, Mohammed Hadi and Gregory Schmidt.