Steven Mnuchin and Jerome Powell are grilled for helping big businesses.
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.
“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.
The Fed is in the process of rolling out a series of emergency lending programs to keep credit flowing into the economy.
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.
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.
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.
“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.”
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.
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.
“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.
Powell and Mnuchin say the economy is likely to weaken before a turnaround begins.
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. 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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
For young adults entering the job market, or early in their working life, this is a particularly anxious time.
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.
Catch up: Here’s what else is happening.
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.
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.
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.
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.