Stocks Fall as Powell Warns of Lasting Economic Damage: Live Updates

Stocks tumble as the Fed chair warns of a prolonged downturn.

Stocks slid on Wednesday, Wall Street’s second drop in two days, after the chair of the Federal Reserve warned of dire consequences if lawmakers don’t do enough to protect the economy.

The downturn is “without modern precedent,” said Jerome H. Powell, the Fed chief. While the central bank has made efforts to limit the economic shock caused by coronavirus-related shutdowns, more financial support might be required from Washington to prevent lasting damage, he said.

Mr. Powell’s comments came as Democrats and Republicans argued about the merits of a new spending plan. On Tuesday, House Democrats unveiled a $3 trillion relief measure that Republicans dismissed as exorbitantly priced and overreaching.

Mr. Powell’s warning — which echoes those of other economists who have said that the government’s relief efforts to date have barely sustained individuals and companies — set the tone for the trading day on Wall Street. The S&P 500 fell nearly 2 percent, adding to its 2 percent loss from the day before.

Investors have shrugged off a number of risks to the economy in recent weeks, instead bidding up stocks since the Fed signaled that it was ready to purchase unlimited bonds to stabilize key financial markets and after President Trump signed a $2 trillion economic rescue package.

That rally, a nearly 30 percent gain in the S&P 500 in March, has lifted stock prices even as company fundamentals worsened, and it came despite a darkening outlook for growth.

Mr. Powell seemed to focus investors on the risks again, a day after they heard a different concern from Dr. Anthony S. Fauci, a central figure in the U.S. government’s coronavirus response. If economic interests were allowed to override public health concerns, Dr. Fauci warned, “there is a real risk that you will trigger an outbreak that you may not be able to control.”

And some influential investors have weighed in on the growing disconnect between the performance of the stock market and an ugly outlook for the American economy. On Wednesday, David Tepper, a longtime hedge fund manager, said on CNBC that he thought the market was the most overvalued it has been since 1999.

Uber says it raised $900 million to fund acquisitions.

Companies like Uber are trying to limit damage to their business from the coronavirus and double down on services that are growing, such as food delivery.Credit…Karsten Moran for The New York Times

Uber raised $900 million in a debt sale to help fund potential acquisitions, the ride-hailing company said Wednesday.

Uber is in talks to acquire Grubhub, the food-delivery service, although the deal has not yet been finalized and could still fall apart. If it goes through, it would create one giant player in food delivery as more people turn toward those services in the coronavirus pandemic.

Uber’s debt sale puts it alongside Disney, ViacomCBS and Live Nation, which have all raised cash to ride out financial uncertainty caused by the coronavirus pandemic. Uber said it would put the proceeds toward “working capital and other general corporate purposes, which may include potential acquisitions and strategic transactions.”

Companies like Uber are trying to limit damage to their business from the coronavirus — its main ride-hailing business has cratered as people have stopped traveling — and double down on services that are growing. The food delivery business has also been highly competitive, with rivals regularly undercutting one another on delivery prices, so a deal that would unite two of the players could help reduce those pressures.

This is where Americans are shopping online now.

Online sales in the United States have surged since shelter-in-place measures shuttered brick-and-mortar stores in March. But the recent gains have not been spread evenly, new data shows.

Big and sometimes unexpected winners have emerged in several of the industries that have come to define the coronavirus economy, according to data from Earnest Research, which tracks millions of credit and debit card transactions in the United States.

  • More than a third of all Americans ordered groceries online for the first time over the last month, according to several surveys, and people have spent more ordering groceries online each succeeding week of the crisis. The clear winner so far has been Instacart.

  • Target and Walmart have been investing more heavily in grocery sales to take on the behemoth of online shopping, Amazon. Both companies recently expanded their online sales much faster than Amazon.

  • DoorDash, the market leader in online meal delivery, expanded its dominant position as it focused on chain restaurants and areas outside the big cities, where the sense of crisis has been less acute. Grubhub grew more slowly, in large part, analysts say, because the company had long focused on independent restaurants, which have been more likely to close during the quarantines, and on New York, where the crisis hit the hardest.

  • One of the few apparel companies that has been doing well, at least online, is Lululemon, thanks to its generous selection of the sweatpants and leggings that serve as particularly good work clothes when your office is in the basement.

A federal retirement fund ‘deferred’ plans to invest in Chinese stocks.

A retirement fund for more than 5.9 million current and former government employees has halted plans to invest in Chinese stocks.

The Thrift Savings Plan’s effort to diversify the international stock portion of the $593.7 billion it has in assets under management has become a flash point in an increasingly contentious relationship between the United States and China.

The board that controls the fund had for months defended its plans to increase its exposure to China, saying that it was simply seeking to diversify its investments and provide better returns for its savers.

But members of Congress, the Trump administration and outside advisers have criticized the move, saying that it would pump funds into some companies that work with the Chinese military or have been the subject of sanctions by the U.S. government.

Politicians of both parties, but particularly some in the Trump administration, have called for decoupling the Chinese and American economies, arguing that American efforts to work closely with China have strengthened its authoritarian government.

Others have criticized a lack of transparency in the Chinese financial system that could be putting American investors at risk of fraud. Chinese law restricts the company documentation that auditors can transfer out of the country, limiting their visibility to American regulators.

Clete Willems, a former Trump administration official who is now a partner at the law firm Akin Gump, said the decision “may just be the start of a broader reassessment about the risks of investing in China.”

Treasury chief tells borrowers who took small loans that they are in the clear.


Treasury Secretary Steve Mnuchin in the State Dining Room at the White House in Washington last week.Credit…Anna Moneymaker/The New York Times

The Treasury Department eased its call for all recipients of emergency small business loans to consider returning the money if they had other options and said on Wednesday that borrowers who took loans for less than $2 million would be considered to have applied in good faith.

The updated guidance is the latest shift for the Paycheck Protection Program. It comes after Treasury Secretary Steven Mnuchin warned last month that businesses that had other access to capital and took small business loans could face audits and criminal prosecution. Borrowers were given until May 14 to review their loans, which are forgivable, and repay the money if they did not truly need it.

But on Wednesday, Treasury said that borrowers who took smaller loans were in the clear.

The agency decided that smaller loans likely went to businesses that did not have other access to capital and that the money would allow them to keep workers on the payroll. Scaling back its effort to claw back money will also allow the Small Business Administration to focus its auditing efforts on bigger companies that took larger loans.

Any company that took a loan larger than $2 million and seeks to have the loan forgiven will face a review by the S.B.A.

America’s job losses might be slowing.


Last week, the Labor Department’s monthly report showed that the U.S. economy in April shed a staggering 20.5 million jobs, the worst figures since the Great Depression. But a new analysis suggests that the rapid rise in unemployment may be flattening, though not for everyone.

According to an analysis of daily surveys conducted by Civis Analytics, while women, workers earning more than $100,000 and part-time workers are continuing to experience growing joblessness or no improvement, the rate of change is relatively brighter for men, full-time employees and people earning less than $50,000.

Other researchers tracking employment have also noted a slowdown in employment losses. For example, the Current Population Survey implies employment among working-age Americans fell 13.8 percent between early March and early April, while our tracker shows employment among this population fell 13.2 percent by mid-to-late April.

Because these results are cumulative, a slowdown means that fewer people are joining the ranks of the unemployed, but also that few of the workers who became unemployed in March and April are returning to work.

J.C. Penney could file for bankruptcy as soon as Friday.


A filing from J.C. Penney would be the biggest bankruptcy yet during the pandemic based on the number of stores and workers. Credit…Charles Krupa/Associated Press

J.C. Penney, the department-store chain that was founded in 1902, might 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 were 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 number of locations and workers. The retailer, which is based in Plano, Texas, has 846 stores in the United States and Puerto Rico and 90,000 employees.

Southwest tries to entice travelers with a flight sale.


Southwest Airlines, the largest domestic carrier, typically has two sales each year, but neither includes summer trips. Credit…Anna Moneymaker/The New York Times

Southwest Airlines began a monthlong sale on Tuesday 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. The Transportation Security Administration said that it conducted checks on 163,205 passengers on Tuesday, compared with 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 Fridays and Sundays or trips over the Memorial Day and Labor Day holiday weekends.

Powell says more government help may be needed to avoid a deep recession.




‘Without Modern Precedent,’ Powell Says of Economic Downturn

Federal Reserve Chair Jerome H. Powell called on the government to do more to support the economy as job losses mount because of the coronavirus outbreak.

The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II. We are seeing a severe decline in economic activity and employment, and already the job gains of the last decade have been erased. Governments around the world have responded quickly with measures to support workers who have lost income and businesses that have either closed or seen a sharp drop in activity. The response here in the United States has been particularly swift and forceful. To date, Congress has provided roughly $2.9 trillion in support for households, businesses, health care providers and state and local governments — about 14 percent of G.D.P. While the coronavirus economic shock appears to be the largest on record, the fiscal response has also been the fastest and largest response for any post-war downturn. But the coronavirus crisis raises longer-term concerns as well. The record shows that deeper and longer recessions can leave behind lasting damage to the productive capacity of the economy. Avoidable household and business insolvencies can weigh on growth for years to come, long stretches of unemployment can damage or end workers’ careers as their skills lose value and professional networks dry up, and leave families in greater debt. The loss of thousands of small- and medium-sized businesses across the country would destroy their life’s work and family legacy of many businesses and community leaders and limit the strength of the recovery when it comes. These businesses are a principal source of job creation, something we will need sorely as people seek to return to work.

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Federal Reserve Chair Jerome H. Powell called on the government to do more to support the economy as job losses mount because of the coronavirus outbreak.CreditCredit…Eric Baradat/Agence France-Presse — Getty Images

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 virtual event put on by the Peterson Institute for International Economics, 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.”

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.

Mr. Powell 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.

He also said on Wednesday that the central bank was not considering cutting interest rates below zero, adding that 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.

Bus operators, who say they were left out, are calling for emergency federal funding.


Motor coach owners and drivers gathered near Chicago’s O’Hare Airport on Monday before heading to Washington, D.C., for a “rolling rally.”Credit…Scott Olson/Getty Images

A motorcade of hundreds of buses drove around Washington, D.C., on Wednesday, part of a “rolling rally” calling for federal assistance as the industry struggles during the coronavirus pandemic. The American Bus Association and United Motorcoach Association are asking lawmakers for $15 billion in grants and loans.

“In the last stimulus bill, every form of passenger transportation was funded: airlines, Amtrak and transit, and the only form that wasn’t funded was private bus operators,” said Peter J. Pantuso, president of the American Bus Association. “The industry provides transport for 600 million people a year — as many as the airplanes do — and we were completely left out by Congress.”

More than 90 percent of the industry’s work force was laid off or furloughed because of the impact of stay-at-home orders on travel.

New rules give workers flexibility to change health plans and spending accounts.


The Internal Revenue Service normally enforces strict rules on health insurance enrollment. Credit…Al Drago for The New York Times

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.

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.

Catch up: Here’s what else is happening.

  • A United Nations report Wednesday predicted that the global economy would contract by 3.2 percent in 2020 because of the pandemic. A small increase had been expected before the crisis started. The U.N. further expects 34.3 million people to fall into extreme poverty this year, with more than half of the increase happening in Africa.

  • Condé Nast plans to lay off nearly 100 employees, the company’s chief executive, Roger J. Lynch, announced in a memo to staff members on 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, which the company announced last month. Another 100 people will be furloughed for a few months and other employees will see reduced hours.

  • Britain’s economy contracted by 2 percent in the first three months of 2020 compared with 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.

Reporting was contributed by Kate Conger, Ana Swanson, Nathaniel Popper, Jeanna Smialek, Sapna Maheshwari, Alan Rappeport, Michael J. de la Merced, Stanley Reed, Ernie Tedeschi, Quoctrung Bui, Sophia June, Tariro Mzezewa, Jack Ewing, Carlos Tejada, Mohammed Hadi, Vikas Bajaj, Niraj Chokshi, Edmund Lee, Neal E. Boudette, Jane Margolies, Katie Robertson and Gregory Schmidt.