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Fed Chief Warns of Lasting Economic Damage: Live Updates Fed Chief Warns of Lasting Economic Damage: Live Updates
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Stocks on Wall Street were volatile on Wednesday after the Federal Reserve chair signaled a prolonged recession may be ahead without further fiscal support from lawmakers.Stocks on Wall Street were volatile on Wednesday after the Federal Reserve chair signaled a prolonged recession may be ahead without further fiscal support from lawmakers.
The Fed chair, Jerome H. Powell, speaking via webcast, said the central bank’s efforts to stem the damage to the U.S. economy wouldn’t be enough to address a downturn “without modern precedent.” His comments came as Congress began to hash out the future of the government’s coronavirus response. House Democrats on Tuesday unveiled a $3 trillion relief measure, which Republicans dismissed as exorbitantly priced and overreaching.The Fed chair, Jerome H. Powell, speaking via webcast, said the central bank’s efforts to stem the damage to the U.S. economy wouldn’t be enough to address a downturn “without modern precedent.” His comments came as Congress began to hash out the future of the government’s coronavirus response. House Democrats on Tuesday unveiled a $3 trillion relief measure, which Republicans dismissed as exorbitantly priced and overreaching.
The S&P 500 wavered before falling more than 2 percent. Global markets were broadly lower, with European indexes down 1 to 2 percent. The S&P 500 wavered before falling about 2 percent. Global markets were broadly lower, with European indexes down 1 to 2 percent.
Wednesday’s trading came after a downbeat day on Wall Street on Tuesday, with the S&P 500 dropping 2 percent after officials warned that fully reopening the country’s economy could be a long and protracted process. The gloomy news continued on Wednesday, as the British government reported its economy fell 2 percent in the first quarter, and 5.8 percent in March alone. Commerzbank, Germany’s second-largest lender, said it was anticipating a large number of customers would be unable to repay loans.Wednesday’s trading came after a downbeat day on Wall Street on Tuesday, with the S&P 500 dropping 2 percent after officials warned that fully reopening the country’s economy could be a long and protracted process. The gloomy news continued on Wednesday, as the British government reported its economy fell 2 percent in the first quarter, and 5.8 percent in March alone. Commerzbank, Germany’s second-largest lender, said it was anticipating a large number of customers would be unable to repay loans.
Fed Chair Jerome H. Powell said the central bank is not considering lowering interest rates below zero, saying that negative rates are not necessary given the Fed’s other tools. J.C. Penney, the department-store chain that was founded in 1902, may file for bankruptcy as soon as Friday after skipping two interest payments on its debt in the past month, according to two people familiar with the matter.
The company is in talks to secure about $450 million in debtor-in-possession financing, which would allow it to keep operating the business, according to the people, who spoke on condition of anonymity because discussions are confidential. The company declined to comment.
The people said that the filing date could change, and that the amount of financing was still being negotiated. It would follow last week’s bankruptcy filing from the Neiman Marcus Group, as department stores struggle to navigate their businesses through the coronavirus pandemic. J. Crew also filed for bankruptcy last week. A filing from J.C. Penney, however, would be the biggest bankruptcy yet during the pandemic based on its locations and staff. The retailer, which is based in Plano, Texas, has 846 stores in the United States and Puerto Rico and 90,000 employees.
J.C. Penney skipped a $12 million interest payment due last month, saying at the time that it was a “strategic decision” in order to take advantage of a 30-day grace period before it was considered in default. The deadline for that would be Friday. The chain also skipped a $17 million interest payment due on May 7, with a grace period of five business days. The deadline to make that payment also appears to be Friday.
Southwest Airlines on Tuesday began a monthlong sale for flights between May 26 and Aug. 31, in an effort to encourage summer travel. One-way tickets range from $49 to $99, with the airline offering double frequent flier points.
Devastated carriers are struggling to fill planes as stay-at-home orders keep most people from traveling. On Tuesday, the Transportation Security Administration said that it had conducted checks on 163,205 passengers, as compared to 2,191,387 passengers on the same day in 2019. Most planes have been flying with an average of 23 passengers.
“This promotion is designed to see if Southwest can stimulate demand among personal or leisure travelers,” said Robert Mann, an airline industry analyst and former executive. “They’re trolling for adventurous souls to go out and sample the travel environment.”
Southwest, the largest domestic carrier, typically has two popular sales each year — one in June and another in October, but neither sale includes summer trips. The current sale fares don’t apply to flights on popular travel days like Friday and Sunday or over the Memorial Day and Labor Day holiday weekends.
The deals include a one-way nonstop flight between Los Angeles and Salt Lake City for $49, and a $99 one-way fare between Dallas and New York.
Federal Reserve Chair Jerome H. Powell delivered a stark warning on Wednesday that the United States is facing an economic hit “without modern precedent,” one that could permanently damage the economy if Congress does not provide sufficient policy support to prevent a wave of bankruptcies and prolonged joblessness.
Mr. Powell’s blunt diagnosis was the clearest signal yet that the trillions of dollars in support that policymakers have already funneled into the economy may not be enough to prevent lasting damage from a virus that has already shuttered businesses and thrown more than 20 million people out of work.
It also serves as a rejoinder to lawmakers and the Trump administration, whose discussions of additional rescue measures have run aground as Democrats unveil a dramatic wish-list and Republicans shy away from federal spending, betting instead that “reopening” the economy will quickly and dramatically lift growth.
“The recovery may take some time to gather momentum,” Mr. Powell said at a Peterson Institute for International Economics virtual event, where he lauded Congress’s early response packages and suggested that an uncertain outlook may call for more. “Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery.”
Members of Congress remain divided along partisan lines over how aggressively to pursue additional relief spending, with Democrats proposing sweeping new programs and Republicans voicing concerns over the swelling federal budget deficit.
Mr. Powell and his central bank colleagues are stepping into their role as economic experts and informal advisers to prod fiscal policymakers into action. They say the recovery remains “highly uncertain,” and if the policy response proves inadequate, the consequences could be long-lasting and painful.
“While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks,” Mr. Powell said Wednesday.
He pointed out that the burden often falls on the most disadvantaged, explaining that a Fed survey set for release on Thursday will show that almost 40 percent of people who were working in February and were members of households making less than $40,000 a year had lost their jobs in March.
Fed Chair Jerome H. Powell said the central bank is not considering lowering interest rates below zero, adding that negative rates are not necessary given the Fed’s other tools.
“For now it’s not something that we are considering,” Mr. Powell said during a question-and-answer session after giving a speech at the Peterson Institute for International Economics.“For now it’s not something that we are considering,” Mr. Powell said during a question-and-answer session after giving a speech at the Peterson Institute for International Economics.
Mr. Powell said the Fed would instead rely on the same tools it employed during the last recession — forward guidance about the path of interest rates and asset purchases.Mr. Powell said the Fed would instead rely on the same tools it employed during the last recession — forward guidance about the path of interest rates and asset purchases.
“We have evidence that it works and that’s what we will be using,” Mr. Powell said, adding that the evidence about whether negative rates are effective is “very mixed,” Jeanna Smialek reports.“We have evidence that it works and that’s what we will be using,” Mr. Powell said, adding that the evidence about whether negative rates are effective is “very mixed,” Jeanna Smialek reports.
The Fed has already slashed rates to near zero and indicated that it will not raise them anytime soon. But investors have been speculating about negative rates over the past week after futures contracts began to imply that the Fed’s main policy rate will dip below zero around the end of 2020. Central bank officials have consistently pushed back on that idea.The Fed has already slashed rates to near zero and indicated that it will not raise them anytime soon. But investors have been speculating about negative rates over the past week after futures contracts began to imply that the Fed’s main policy rate will dip below zero around the end of 2020. Central bank officials have consistently pushed back on that idea.
Still, some vocal champions of negative rates have continued to call on the Fed to embrace them, including President Trump, who has repeatedly urged Mr. Powell to take rates below zero.Still, some vocal champions of negative rates have continued to call on the Fed to embrace them, including President Trump, who has repeatedly urged Mr. Powell to take rates below zero.
“As long as other countries are receiving the benefits of Negative Rates, the USA should also accept the “GIFT.” Big numbers!” Mr. Trump said in a tweet on Tuesday.“As long as other countries are receiving the benefits of Negative Rates, the USA should also accept the “GIFT.” Big numbers!” Mr. Trump said in a tweet on Tuesday.
Southwest Airlines on Tuesday began a monthlong sale for flights between May 26 and Aug. 31, in an effort to encourage summer travel. One-way tickets range from $49 to $99, with the airline offering double frequent flier points.
Devastated carriers are struggling to fill planes as stay-at-home orders keep most people from traveling. On Tuesday, the Transportation Security Administration said that it had conducted checks on 163,205 passengers, as compared to 2,191,387 passengers on the same day in 2019. Most planes have been flying with an average of 23 passengers.
“This promotion is designed to see if Southwest can stimulate demand among personal or leisure travelers,” said Robert Mann, an airline industry analyst and former executive. “They’re trolling for adventurous souls to go out and sample the travel environment.”
Southwest, the largest domestic carrier, typically has two popular sales each year — one in June and another in October, but neither sale includes summer trips. The current sale fares don’t apply to flights on popular travel days like Friday and Sunday or over the Memorial Day and Labor Day holiday weekends.
The deals include a one-way nonstop flight between Los Angeles and Salt Lake City for $49, and a $99 one-way fare between Dallas and New York.
Federal Reserve Chair Jerome H. Powell said an even stronger fiscal policy response might be needed to restore economic prosperity as a downturn “without modern precedent” strikes the United States — one that brings with it the threat of long-lasting damage.
“The recovery may take some time to gather momentum, and the passage of time can turn liquidity problems into solvency problems,” Mr. Powell said, in remarks at a Peterson Institute for International Economics virtual event. “Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery.”
The Fed has rushed to support the U.S. economy as coronavirus fears sent markets sharply lower in late February and lockdowns took hold in March, leaving workers jobless and businesses without income. Mr. Powell and his colleagues slashed interest rates to zero, rolled out unlimited bond buying meant to restore order in government bond markets, and unveiled nine emergency lending programs in partnership with the Treasury Department.
But Mr. Powell reiterated on Wednesday that the Fed’s programs, which will buy bonds from companies and local governments and make loans to midsize businesses, can only temporarily supply credit to ruptured markets. The Fed does not have the ability to make grants, which may be what companies and households need to make it through.
He characterized the Fed’s ability to help as a “bridge across temporary interruptions to liquidity.” But he highlighted that more than a bridge may be needed as huge uncertainties continue to confront the economy, from the speed of reopening to the scope of testing and timing of a vaccine.
Coronavirus lockdowns have left more than 20 million people out of work, disproportionately hitting service sector workers, many of them low-income and without savings.
“The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II,” Mr. Powell said Wednesday, noting that “the job gains of the past decade have been erased.”
The Internal Revenue Service on Tuesday made it easier for employers to allow workers to make adjustments to their health insurance plans and flexible spending accounts in response to the coronavirus pandemic.The Internal Revenue Service on Tuesday made it easier for employers to allow workers to make adjustments to their health insurance plans and flexible spending accounts in response to the coronavirus pandemic.
Normally, strict rules prevent employees from changing health insurance plans in the middle of a year. But the I.R.S. is giving employers a way to let workers make changes without waiting for the usual enrollment period.Normally, strict rules prevent employees from changing health insurance plans in the middle of a year. But the I.R.S. is giving employers a way to let workers make changes without waiting for the usual enrollment period.
Under the new guidance, employers can let their workers drop out of their health insurance if they have another option, or sign up if they failed to earlier in the year. Workers could also be allowed to add more family members to their plan, or switch from one workplace plan to another.Under the new guidance, employers can let their workers drop out of their health insurance if they have another option, or sign up if they failed to earlier in the year. Workers could also be allowed to add more family members to their plan, or switch from one workplace plan to another.
Britain’s economy contracted by 2 percent in the first three months of 2020 compared to the previous quarter, the government reported on Wednesday, the steepest quarterly drop since the financial crisis in 2008. In March alone, the economy shrank by 5.8 percent from February, the largest drop since the Office of National Statistics began keeping monthly tallies in 1997.Britain’s economy contracted by 2 percent in the first three months of 2020 compared to the previous quarter, the government reported on Wednesday, the steepest quarterly drop since the financial crisis in 2008. In March alone, the economy shrank by 5.8 percent from February, the largest drop since the Office of National Statistics began keeping monthly tallies in 1997.
The January-March period did not reflect the full effects of the coronavirus pandemic that has led to government-ordered lockdowns in Britain and elsewhere. Britain’s lockdown only began in the last week in March. Since then, schools and many shops have been closed, and many employees have either been furloughed from their jobs — a government scheme pays up to 80 percent of furloughed employees’ wages — or are working at home.The January-March period did not reflect the full effects of the coronavirus pandemic that has led to government-ordered lockdowns in Britain and elsewhere. Britain’s lockdown only began in the last week in March. Since then, schools and many shops have been closed, and many employees have either been furloughed from their jobs — a government scheme pays up to 80 percent of furloughed employees’ wages — or are working at home.
The agency said that in March nearly every part of the economy was hit, with education, car sales and restaurants all falling substantially. Among the few industries that recorded growth were IT support and pharmaceuticals and cleaning products as the country stocked up to prepare for the pandemic.The agency said that in March nearly every part of the economy was hit, with education, car sales and restaurants all falling substantially. Among the few industries that recorded growth were IT support and pharmaceuticals and cleaning products as the country stocked up to prepare for the pandemic.
Tesla’s California car factory received a conditional approval from local officials late Tuesday to begin getting ready to restart production next week.Tesla’s California car factory received a conditional approval from local officials late Tuesday to begin getting ready to restart production next week.
The Alameda County Public Health Department said that it had held “productive discussions” with Tesla’s representatives, and that it made “additional safety recommendations” to the carmaker’s plans.The Alameda County Public Health Department said that it had held “productive discussions” with Tesla’s representatives, and that it made “additional safety recommendations” to the carmaker’s plans.
“If Tesla’s Prevention and Control Plan includes these updates, and the public health indicators remain stable or improve, we have agreed that Tesla can begin” to prepare the factory this week for “possible reopening as soon as next week,” the health department said.“If Tesla’s Prevention and Control Plan includes these updates, and the public health indicators remain stable or improve, we have agreed that Tesla can begin” to prepare the factory this week for “possible reopening as soon as next week,” the health department said.
The announcement came after a day when Tesla was shipping out new cars from the site despite the county’s order prohibiting it from restarting production.The announcement came after a day when Tesla was shipping out new cars from the site despite the county’s order prohibiting it from restarting production.
The company’s chief executive, Elon Musk, said on Monday that the factory would restart in violation of an order from Alameda County, and dared officials to arrest him. President Trump threw his weight behind the billionaire entrepreneur on Tuesday, saying California should allow Tesla to restart “NOW.”The company’s chief executive, Elon Musk, said on Monday that the factory would restart in violation of an order from Alameda County, and dared officials to arrest him. President Trump threw his weight behind the billionaire entrepreneur on Tuesday, saying California should allow Tesla to restart “NOW.”
It was not clear how many cars Tesla was making. But on Tuesday, trucks were leaving the factory, which is the Bay Area city of Fremont, with new sedans and sport-utility vehicles. New cars were also parked in rows outside the factory. The parking lot for employees was also filled.It was not clear how many cars Tesla was making. But on Tuesday, trucks were leaving the factory, which is the Bay Area city of Fremont, with new sedans and sport-utility vehicles. New cars were also parked in rows outside the factory. The parking lot for employees was also filled.
Tesla’s head of human resources for North America, Valerie Workman, sent an email to employees on Monday saying that their furloughs had ended on Sunday. She said employees who were uncomfortable returning to work could stay home on unpaid leave.Tesla’s head of human resources for North America, Valerie Workman, sent an email to employees on Monday saying that their furloughs had ended on Sunday. She said employees who were uncomfortable returning to work could stay home on unpaid leave.
Tesla did not respond to a request for comment.Tesla did not respond to a request for comment.
The county’s director for health care services, Colleen Chawla, had sent a letter to Tesla late Monday saying that the company was violating its order.The county’s director for health care services, Colleen Chawla, had sent a letter to Tesla late Monday saying that the company was violating its order.
The plant is Tesla’s main source of revenue and has been closed for more than a month. County officials have said they were working with Tesla on an agreement to reopen the plant on May 18. But Tesla sued the county on Saturday in United States District Court in San Francisco, arguing that the county’s order was unconstitutional and contradicted an order by Gov. Gavin Newsom that permits manufacturing statewide.
Some automakers may emerge stronger, others too weak to survive on their own. Factories will shut down. The pressure to go electric could become more intense.
The outbreak will realign the business of making cars in ways that could have a profound effect on the eight million people worldwide who work for vehicle manufacturers. As Volkswagen, Daimler, Fiat Chrysler and other companies slowly restart their assembly lines, people who work in the car business are beginning to ponder what the repercussions of this crisis will be.
People may travel less now that they have discovered how much they can get done from home. Or they may commute more by car to avoid jostling with others on crowded buses and trains. Companies like Chinese automakers could swoop in on competitors elsewhere with battered share prices. Labor strife could become more common as factories close. All the chaos may leave room for start-ups that could inject new life in the industry.
“We shouldn’t be too optimistic and expect that in 2021 everything is going to go back to normal as if nothing happened,” Ola Källenius, the chief executive of Daimler, told reporters during a recent conference call.
We’ve never been such attractive targets for fraudsters and scammers, writes Brian X. Chen. Uncertainty around the coronavirus pandemic has created opportunities for robocallers, hackers and other thieves.We’ve never been such attractive targets for fraudsters and scammers, writes Brian X. Chen. Uncertainty around the coronavirus pandemic has created opportunities for robocallers, hackers and other thieves.
Millions of people are filing claims for unemployment benefits and awaiting stimulus checks. So when a phone call or an email from someone purporting to be a bank or a government official comes in, it is tougher to ignore.Millions of people are filing claims for unemployment benefits and awaiting stimulus checks. So when a phone call or an email from someone purporting to be a bank or a government official comes in, it is tougher to ignore.
Here’s what not to fall for:Here’s what not to fall for:
FAKE WEBSITES Fraudsters are trying to capitalize on our behavior by creating fake websites. To protect yourself, check the website’s URL and install an ad blocker.FAKE WEBSITES Fraudsters are trying to capitalize on our behavior by creating fake websites. To protect yourself, check the website’s URL and install an ad blocker.
SCAM CALLS Robocallers have a reputation for sounding dumb, but they are resourceful and work hard for your money. If you think a scammer is calling, hang up and call back. To avoid falling for a spoofed number, remove businesses from your phone’s address book.SCAM CALLS Robocallers have a reputation for sounding dumb, but they are resourceful and work hard for your money. If you think a scammer is calling, hang up and call back. To avoid falling for a spoofed number, remove businesses from your phone’s address book.
EMAIL AND TEXT MESSAGES Phishing is one of the oldest internet scams, but it still happens because it works. Check the sender. Fraudulent email addresses will look like legitimate ones but often be off by a character or two. And check — but don’t click on — hyperlinks.EMAIL AND TEXT MESSAGES Phishing is one of the oldest internet scams, but it still happens because it works. Check the sender. Fraudulent email addresses will look like legitimate ones but often be off by a character or two. And check — but don’t click on — hyperlinks.
THE HOME OFFICE Hackers trying to steal information from a business might look to attack our personal email accounts or home networks. Check your network security and update your Wi-Fi router. And keep work and business tech separate, because your equipment and apps were probably not set up to protect your company’s network security.THE HOME OFFICE Hackers trying to steal information from a business might look to attack our personal email accounts or home networks. Check your network security and update your Wi-Fi router. And keep work and business tech separate, because your equipment and apps were probably not set up to protect your company’s network security.
Condé Nast plans to lay off nearly 100 employees, the company’s chief executive, Roger J. Lynch, announced in a memo to staff Wednesday. The publisher of Vogue, Vanity Fair and The New Yorker has sought to cut costs across the company as luxury sales tumble during the coronavirus pandemic. The staff reductions follow pay cuts for top executives, including Anna Wintour, the company’s artistic director, that the company announced last month. Another 100 people will be furloughed for a few months and other employees will see reduced hours.Condé Nast plans to lay off nearly 100 employees, the company’s chief executive, Roger J. Lynch, announced in a memo to staff Wednesday. The publisher of Vogue, Vanity Fair and The New Yorker has sought to cut costs across the company as luxury sales tumble during the coronavirus pandemic. The staff reductions follow pay cuts for top executives, including Anna Wintour, the company’s artistic director, that the company announced last month. Another 100 people will be furloughed for a few months and other employees will see reduced hours.
Commerzbank, Germany’s second-largest lender after Deutsche Bank, fell into the red during the first three months of 2020 as it faced an increase in problem loans caused by the pandemic. The bank reported a loss of 295 million euros, or $320 million, in the quarter, compared with a profit of €122 million a year earlier. While revenue from interest and commissions rose because of higher demand for loans, Commerzbank quadrupled the amount it set aside to cover losses from delinquent borrowers.Commerzbank, Germany’s second-largest lender after Deutsche Bank, fell into the red during the first three months of 2020 as it faced an increase in problem loans caused by the pandemic. The bank reported a loss of 295 million euros, or $320 million, in the quarter, compared with a profit of €122 million a year earlier. While revenue from interest and commissions rose because of higher demand for loans, Commerzbank quadrupled the amount it set aside to cover losses from delinquent borrowers.
TUI, the world’s largest travel company, said it would cut its work force by more than 10 percent after the pandemic brought its operations almost to a standstill. The company, based in Hanover, Germany, said it would begin reopening some of its 400 hotels and resorts in coming days, but that it would still need to cut 8,000 jobs out of a total of 70,000 worldwide. TUI also owns a fleet of 150 aircraft and 18 cruise ships.TUI, the world’s largest travel company, said it would cut its work force by more than 10 percent after the pandemic brought its operations almost to a standstill. The company, based in Hanover, Germany, said it would begin reopening some of its 400 hotels and resorts in coming days, but that it would still need to cut 8,000 jobs out of a total of 70,000 worldwide. TUI also owns a fleet of 150 aircraft and 18 cruise ships.
Reporting was contributed by Jeanna Smialek, Stanley Reed, Tariro Mzezewa, Jack Ewing, Carlos Tejada, Mohammed Hadi, Vikas Bajaj, Niraj Chokshi, Edmund Lee, Neal E. Boudette, Jane Margolies, Katie Robertson and Gregory Schmidt. Reporting was contributed by Jeanna Smialek, Sapna Maheshwari, Michael J. de la Merced, Stanley Reed, Tariro Mzezewa, Jack Ewing, Carlos Tejada, Mohammed Hadi, Vikas Bajaj, Niraj Chokshi, Edmund Lee, Neal E. Boudette, Jane Margolies, Katie Robertson and Gregory Schmidt.