The Finance 202: Fed’s Powell signals Congress needs to do more to ease grim economic forecast

with Brent D. Griffiths

Call him the chairman of keeping the champagne corked. Federal Reserve chief Jerome Powell delivered a gloomy economic forecast that will demand more relief from both the central bank and Congress.

Notwithstanding the stunning upside surprise in the May jobs report, Powell, at a Wednesday news conference following a meeting of Fed officials, emphasized the depth of the hole the economy will spend years escaping. More than 22 million people are out of work and “a significant chunk, well into the millions” could remain that way, he said.

“This is the biggest economic shock in the U.S., and in the world, really, in living memory,” Powell said. “We went from the lowest level of unemployment in 50 years to the highest level in close to 90 years, and we did it in two months — extraordinary.”

Congress can help ease the pain by spending more than the unprecedented $3 trillion it has already authorized, he said. The Fed now projects the economy will shrink by 6.5 percent this year and close out with 9.3 percent joblessness, falling to 5.5 percent by the end of 2022. 

Powell suggested congressional help would help head off a lopsided recovery that exacerbates inequality.

“With more fiscal support… you’d see better results sooner,” he said.

As he has since the pandemic shutdowns first pitched a record-length economic expansion into crisis, Powell rang the alarm about the disproportionate pain the shock is delivering to the most vulnerable. “The rise in joblessness has been especially severe for lower-wage workers, for women, and for African Americans and Hispanics,” he said.

But as Heather Long writes, the Fed’s tools are better geared toward propping up financial markets: “Low interest rates have triggered a massive rebound in the stock market in recent weeks and made it cheaper for Americans to borrow money to buy homes or vehicles and for businesses to take out loans,” she writes.

“Powell stressed the limits of the Fed’s ability to help the economy, suggesting Congress needs to do more to aid workers who can’t get their jobs back this summer and small-business owners who don’t make it through this pandemic through no fault of their own. ‘Many borrowers will benefit from these [Fed] programs, as will the overall economy,’ Powell said, but he noted that there are limits to what the Fed can do and ‘direct fiscal support may be needed’ to help prevent ‘long-lasting damage’ to the U.S. economy.”

From the Fed: 

The central bank chief wasn’t alone in signaling the recovery will need more help from Washington.

Powell has been a more outspoken advocate of a bigger federal rescue than Treasury Secretary Steven Mnuchin. But on Wednesday, it was Mnuchin who made the sharper appeal for lawmakers to approve more spending. “I definitely think we are going to need another bipartisan legislation to put more money into the economy,” Mnuchin said in testimony before the Senate Small Business Committee.

And despite Republican misgivings about extending an additional $600 a week in unemployment benefits for the jobless, Mnuchin said, “We’re going to need to look at doing something there.” 

He dismissed concerns that the extra cushion is discouraging laid-off people from returning to work: “I think we’ve seen from the recent numbers that didn’t have a big impact because people want their jobs.” (Powell demurred when asked about the same matter.)

The calls from two top Republican economic policymakers are an important rejoinder to other conservatives taking a premature victory lap on the May jobs numbers, arguing they show the recovery has already found its footing.

Powell was more specific about what the Fed will do.

The Fed will keep its benchmark interest rate near zero through at least 2022, Powell said. Lest there be any doubt about that, the Fed chief phrased the commitment in his trademark plain speak: “We’re not thinking about raising rates. We’re not even thinking about thinking about raising rates,” he said.

And he outlined other ways the central bank aims to ease monetary policy to keep the recovery on track. He said the Fed will continue buying Treasury bonds and mortgage-backed securities at its current pace “over coming months;” its Main Street Lending Program, aimed at lending to mid-sized business, is now in the “final run-up” to launching after weeks of delays and tweaks; and Fed officials will continue to discuss imposing caps on longer-term interest rates.

Market movers

The New York Stock Exchange last month at Wall Street in New York City. (Eisele/AFP/Getty Images)

The Dow and S&P posted loses for the second straight day on Wednesday.

But the tech-heavy Nasdaq closed over 10,000 for the first time: “The Dow Jones Industrial Average and S&P 500 fell for a second straight day on Wednesday as traders once again took profits out of names benefiting from the economy reopening and rotated into mega-cap tech stocks,” CNBC’s Fred Imbert and Maggie Fitzgerald report.

“Shares of Amazon and Apple gained more than 1.7 percent each and hit all-time highs. Alphabet and Netflix rose 0.9 percent and 0.1 percent, respectively. Stocks that would benefit from the economy reopening — which have outperformed in recent weeks — fell broadly. American Airlines, United and JetBlue all dropped more than 8 percent. Wells Fargo slid nearly 9 percent while Citigroup lost 6.1 percent. JPMorgan Chase traded 4.1 percent lower.”

Futures point to rough day ahead on Wall Street: “Futures on the [Dow] dropped 488 points, or 1.8%. The move implied an opening decline of about 500 points. S&P 500 futures fell 1.4%. Nasdaq 100 futures dropped 1.1%.,” CNBC’s Yun Li reports this morning.

Weekly jobless claims expected to be huge, though dropping. 

Today’s report from the Labor Department should show a continued slow decline: “New applications for state unemployment benefits likely totaled a seasonally adjusted 1.55 million for the week ended June 6, down from 1.877 million the prior week, according to a Reuters survey of economists,” Reuters’s Lucia Mutikani writes. “That would pull initial claims further away from a record 6.867 million in late March. But claims for jobless benefits would still be more than double their peak during the 2007-09 Great Recession.”

The Goldman Sachs bank logo. (Jaap Arriens/Getty Images/NurPhoto)

Goldman traders reap $1 billion in commodities: “The commodities unit generated more than $1 billion in revenue this year through May, pouncing on wild swings for its best start in a decade …. Much of the boost came from oil trading overseen by Anthony Dewell and Qin Xiao, who correctly positioned their desks for the collapse in prices,” Bloomberg News’s Sridhar Natarajan and Jack Farchy report.

“The unprecedented mayhem in oil markets sent crude plunging below zero left corporate risk managers scrambling and forced retail investors to unwind bets. But it presented an opportunity for Wall Street traders to score big gains.”

Tesla shares surge past $1,000: The jump came after “Chief Executive Elon Musk told his staff it was time to bring the Tesla Semi commercial truck to ‘volume production,’” Reuters’s Yilei Sun and Brenda Goh report.

“Musk, in an email seen by Reuters … did not specify a time frame for ramping up production of the Semi. Musk on Wednesday tweeted ‘Yes’ to a question on Twitter about whether the report of the leaked Semi truck production email was accurate.”

Protests fallout

A Washington County sheriff’s deputy demonstrates how his agency uses facial-recognition software last year. (Gillian Flaccus/AP)

Amazon bans police use of facial recognition technology for a year.

Though unmentioned in its statement, the tech giant implied protests fueled the decision: “Facial-recognition technology has emerged as a key battleground for tech giants vying for business from customers eager to use the latest tools of artificial intelligence. The technology can help identify people and is critical for such services as unlocking smartphones and tagging friends in photos on social media. But it has also taken on a new and controversial life in law enforcement and other areas, which has raised privacy and bias concerns,” Jay Greene reports from Seattle. (Amazon chief executive Jeff Bezos owns The Washington Post.)

“Privacy advocates have criticized Amazon for selling Rekognition to law enforcement, concerned it could lead to the wrongful arrest of innocent people who bear only a resemblance to a video image. And studies have shown that facial-recognition systems misidentify people of color more often than white people.”

• Silicon Valley continues to struggle with its lack of diversity: “Demographics have only slowly changed in the past decade. Google’s workforce is 54.4 percent white and 3.3 percent black, according to its 2019 diversity report. Apple’s U.S. workforce is 50 percent white and 9 percent black. Amazon’s report shows a more diverse makeup — its U.S. workforce is 34.7 percent white and 26.5 percent black — though its statistics include low-paying warehouse jobs as well as more lucrative white collar positions,” Rachel Lerman reports.
• Black tech founders say venture capital needs to do more: “Only 1 percent of venture capital dollars went to black start-up founders in 2018, according to a study conducted by Silicon Valley Bank and others,” Nitasha Tiku reports from San Francisco. “The number of black decision-makers in venture capital in 2018 dropped to 1 percent — representing just seven black people at the 102 largest venture capital firms in the United States, according to an annual survey by the Information, a tech-news outlet.” 
• House Speaker Nancy Pelosi (D-Calif.) called out tech CEOs for what she framed as a superficial commitment. From The Atlantic’s Ron Brownstein: 

Meanwhile, NASCAR is banning confederate flags at its races: 

Kudlow says he doesn’t think systemic racism exists in the U.S.: “I don’t believe there is systemic racism in the U.S. I’m not going to go into a long riff on it,” White House economic adviser Larry Kudlow, who is white, said when a reporter asked about the country’s black unemployment rate, CNBC’s Kevin Stankiewicz reports.

Trump tracker

Treasury Secretary Steven Mnuchin speaks during a Senate hearing of Title I of the CARES Act on Wednesday. (Al Drago/Pool via AP)

Budget deficit widened almost $2 trillion over eight months.

The federal government’s response to the coronavirus is pushing the deficit to record highs: “The Department of Treasury said the gap between what the U.S. government spends and what it collects in taxes widened to to $1.88 trillion for the first eight months of this fiscal year — an all-time high. America’s federal deficit for all of 2019 was $984 billion, which was already considered unusually large,” Jeff Stein reports.

“The non-partisan Congressional Budget Office has estimated the federal deficit will hit $3.7 trillion by the end of this fiscal year. The Committee for a Responsible Federal Budget pegged the number at $3.8 trillion.”

The Labor Department is still working to fix the error in the jobs report: “The May jobs report included an unusual note saying that the unemployment rate would have been 16.3 percent, not the official rate of 13.3 percent, if not for errors made during the data’s collection, a problem that also plagued monthly reports in March and April. Both the official and corrected May unemployment rates showed improvement compared with April figures. The errors have sowed doubt among some parts of the public about the integrity of the figures, as the economy has cratered during the pandemic,” Eli Rosenberg and Heather Long report.

“William W. Beach, an appointee of [Trump] who became Bureau of Labor Statistics commissioner in 2019, said that the agency is working to improve its data-collection process during the pandemic. Any questions about whether the unemployment rate had been tampered with stem from an ‘enormous ignorance’ of how his agency works, he said.”

Coronavirus fallout

The corporate front: 

• Boeing aims for key 737 Max certification in June: “Reuters has previously reported that the Federal Aviation Administration (FAA) does not plan to clear Boeing for a resumption of 737 MAX flights until at least August,” David Shepardson and Eric M. Johnson report. “… The date could slip into July for the certification test flight, as the dates for many milestones for returning the plane to service have been repeatedly pushed back.”
• American, Delta say demand uptick helping cash burn: “U.S. airlines carried 3 million passengers in April, a staggering 96% decline from April 2019, the Transportation Department said,” Reuters’s David Shepardson and Tracy Rucinski report. “Speaking to shareholders at the company’s annual meeting, American Airlines Chief Executive Doug Parker said while passenger numbers are improving, they are ‘still a fraction of what they were last year and particularly internationally.’ ”
• Ford to resume normal production by July: “Ford Motor Co expects to have its U.S. vehicle assembly plants return by early July to building at the rates they did before the pandemic shut down the U.S. auto industry for two months, Chief Operating Officer Jim Farley said,” Reuters’s Ben Klayman reports.
• Virus continues weighing on consumer prices. “U.S. consumer prices dropped for a third straight month in May as the coronavirus pandemic kept shoppers and travelers at home, but the rate of decline in inflation eased as the cost of groceries, rent and medical services rose,” WSJ’s Harriet Torry reports. “Excluding volatile food and energy categories, so-called core prices fell 0.1% compared with a 0.4% decline in April, marking the first time that index has declined in three consecutive months, according to the Labor Department.”
• Amazon rivals having trouble taking advantage of its pandemic-related struggles: “Thrive Market, based in Los Angeles, is one of a host of retailers that have spent years trying to compete against the Amazon retail juggernaut. The pandemic provided a fleeting window of opportunity … But capturing that opportunity—and trying to ensure it is more than a temporary blip—brought extraordinary challenges for Thrive and others, demonstrating the difficulty of competing with even a weakened Amazon,” the WSJ’s Sebastian Herrera reports.

From the U.S.:

• At least 1,990,000 cases have been reported; at least 111,000 people have died. 
• Experts urge caution as cases rise: “What Arizona is experiencing could be an ominous sign. More than a dozen states are showing new highs in the number of positive coronavirus cases or hospitalizations, according to Washington Post data, a few weeks after lifting restrictions on most businesses and large gatherings,” Chelsea Janes, Isaac Stanley-Becker and Rachel Weiner report.
• Vaccine candidates’ U.S. trials to begin this summer: “The federal government plans to fund and conduct the decisive studies of three experimental coronavirus vaccines starting this summer …,” WSJ’s Peter Loftus reports. “These phase 3 trials are expected to involve tens of thousands of subjects at dozens of sites around the U.S., John Mascola, director of the vaccine research center at the National Institute of Allergy and Infectious Diseases, said. Meant to determine a vaccine’s safety and effectiveness, they would mark the final stage of testing.”
• Iowa State Fair cancelled for the first time since WWII: “After months of review and discussion, the Iowa State Fair Board voted by secret ballot 11-2 in favor of canceling this year’s event amid continuing concerns about the coronavirus pandemic and the financial impracticality of a socially distant fair,” the Des Moines Register’s Courtney Crowder reports.

Pocket change

A Google sign in San Francisco last year. (Jeff Chiu/AP)

Tech companies ready for battle against antitrust probes.

The approach reflects the growing threats from the Justice Department and states’ probes: “Under the withering microscope of government watchdogs, tech giants including Amazon, Facebook and Google have funded a bevy of political groups that have helped push positive polling and engaged in other fingerprint-free tactics designed to deter regulators who are seeking to break up or penalize the industry,” Tony Romm reports.

“The Connected Commerce Council, for example, is a Washington-based nonprofit that bills itself as a voice for small businesses. But it counts Amazon, Facebook and Google as ‘partners,’ and in recent months the group known as 3C has put its muscle to work arguing that Silicon Valley giants do not threaten competition, stifle smaller rivals and harm consumers in the process.” 

Europe’s Just Eat Takeaway to buy Grubhub: “ Just Eat Takeaway.com agreed to acquire U.S.-based Grubhub Inc. for $7.3 billion,” Bloomberg’s Lizette Chapman, Liana Baker, and Natalia Drozdiak report.

“Amsterdam-based Just Eat Takeaway said it will pay $75.15 per share for Grubhub in an all-stock deal. Grubhub’s share price rose 4 percent in extended trading to about $62, while the European company fell 13 percent. The deal sidelines Uber Technologies Inc., which had been in acquisition talks with Grubhub for months. ”

States accuse 26 generic drugmakers of price fixing: “The lawsuit accused Novartis’ Sandoz unit, Teva Pharmaceuticals’ Actavis unit, Mylan, Pfizer Inc. and other drugmakers of conspiring to rig the market between 2009 and 2016 for more than 80 drugs,” Diane Bartz and Jonathan Stempel report.

“Attorneys general from 46 states, the District of Columbia and four U.S. territories said the defendants prioritized profit over the public interest, depriving millions of consumers of lower prices for needed medication.”

Chart topper

From NBC News’s Sahil Kapur: 

Daybook

Today:

• The Labor Department releases the latest data on weekly jobless claims
• Lululemon Athletica, Adobe and Dave & Busters are among the notable companies reporting their earnings

Friday:

• The University of Michigan releases preliminary numbers on consumer sentiment for June
• Party City is among the notable companies reporting its earnings

The funnies

Bull session