with Brent D. Griffiths
Top economists are warning lawmakers not to get transfixed by seemingly rosy data showing the economy finding its legs following the coronavirus pandemic. The recovery remains wobbly — and may get worse as some of the bailout funds expire.
Reports out Tuesday showed retail sales in May and home builder sentiment in June rebounded surprisingly sharply, helping power a stock market rally that pushed the S&P 500 up 2 percent.
But as traders bought on that news, Federal Reserve Chair Jerome Powell was urging senators not to grow complacent. “Significant uncertainty remains about the timing and strength of the recovery,” he said in virtual testimony before the Senate Banking Committee. “Until the public is confident that the disease is contained, a full recovery is unlikely.”
And two teams of the nation’s leading economists are pressing for more major spending to shore up the recovery.
One — a bipartisan group including Obama Treasury secretary Tim Geithner and George W. Bush economic adviser Glenn Hubbard — laid out a detailed plan for what the measure should include. The other — led by former Fed chair Ben Bernanke and joined by more than 100 scholars, including Bernanke’s successor, Janet Yellen — wrote congressional leaders and said they need to approve more rescue funding to head off “prolonged suffering and stunted economic growth.”
The warnings come as congressional Republicans and the Trump administration wrestle with how much more relief to support in the wake of their already-unprecedented, multitrillion-dollar response to the pandemic. By some measures, the economy looks to be dusting itself off ahead of schedule — and some lawmakers are wary of piling on more deficit spending until they have a better sense of where things stand.
Sen. Pat Toomey (R-Pa.), for example, pointed to the May jobs report and retail data during the banking panel’s hearing and said, “I think we should be careful in evaluating what’s necessary before we go forward.” And a group of budget hawks who advise President Trump wrote him and Senate Majority Leader Mitch McConnell (R-Ky.), warning more spending would put the U.S. on the “road to financial ruin,” Bloomberg reports. The letter — signed by outside advisers Art Laffer, Stephen Moore, and Grover Norquist, among others — said, “There is no limit to worthy causes, but there is a limit to other people’s money.”
But economists warn the good news so far owes to bailout measures set to expire in the coming weeks.
Americans have either spent or socked away the $1,200 stimulus checks they received as part of the $2.2 trillion Cares Act. A long list of state and local governments have to wrap work on balanced budgets by the end of this month, meaning many will need to fire workers and curtail spending without relief from Washington. Tax payments the IRS deferred in April are due July 15. And the $600 federal bonus in weekly unemployment benefits expires at the end of next month.
Against that backdrop, Geithner and Hubbard — along with top Obama administration economist Jason Furman and Melissa Kearney, director of the Aspen Institute’s Economic Strategy Group — are pushing members of Congress to spend another $1 trillion to $2 trillion to extend the economic supports.
They credit the fiscal response so far with “protecting the disposable personal income of most households and made funds available to get many businesses through the current period.” And they argue the next package should focus on “extending, transitioning, or adapting these efforts” so people can return to work and resume the spending that drives the economic growth. In particular, these economists say, the next relief bill should:
- Extend boosted unemployment benefits and phase them out as conditions warrant; and make those benefits and others, like food stamps, subject to automatic triggers that will kick in during periods when joblessness spikes.
- Reward those who have continued to work through the pandemic with a targeted tax credit.
- Continue lending to small and mid-sized businesses.
- Give block grants to states that can’t be used for tax cuts or pension boosts but rather services including education and health care.
The letter led by Bernanke, organized by the left-leaning Washington Center for Equitable Growth, doesn’t lay out a specific plan. But it also calls on Congress to extend unemployment benefits, offer aid to state and local governments, protect payrolls, and prop up demand. “This language is not meant to be prescriptive, but to emphasize the scale of the problem that a bill needs to address,” Heather Boushey, the center’s president, says in an email. “It is our intention to make clear to Congress that failing to pass a bill in the trillions will be catastrophic to millions of workers and our economy.”
Powell, who has consistently resisted offering advice on fiscal policy to lawmakers, was more oblique when pressed by senators. He said “some form of support” for the unemployed “is likely to be appropriate,” and state and local budget woes are “worth some attention.”
From the U.S.:
- Nine states set coronavirus infection records: “Nine states, mostly in the South and West, have reported either new single-day highs in coronavirus cases or have set a record with seven-day new case averages,” Candace Bruckner reports. “On Tuesday, as Florida spiked with 2,783 new cases and Texas saw 2,622, Arizona (2,392), Nevada (379), Oklahoma (228), Oregon (278) and South Carolina (612) also reported record-high counts since the start of the outbreak.”
- Inexpensive steroid could be a breakthrough drug: “The 60-year-old drug, dexamethasone, is the first medication shown to increase people’s chances of surviving covid-19, the disease caused by the coronavirus. It reduced the risk of death for patients on ventilators by a third and cut the risk of death for patients on oxygen by a fifth, heartening news that drew widespread interest and hope,” Karla Adam, Lateshia Beachum and Carolyn Y. Johnson report.
- Pence calls spike in cases “overblown”: “In a Wall Street Journal op-ed, Pence, the head of the White House’s coronavirus task force, said that cases were declining or remaining stable in nearly half of U.S. states. But data suggests that infections are rising in many other parts of the country, and that the United States is still experiencing its first wave of the virus,” Antonia Farzan and Candace Buckner report. “Among the states reporting record single-day highs for new coronavirus cases on Tuesday were Florida, with 2,783 new cases, Texas, with 2,622, and Arizona, with 2,392.”
- Fauci says he wouldn’t attend Trump’s Tulsa rally. Anthony S. Fauci, the nation’s top infectious disease expert, told the Daily Beast he wouldn’t attend the event, expected to draw 19,000 to an indoor arena: “I’m in a high risk category. Personally, I would not. Of course not.”
- Pelosi asks House committees to require masks: “Masks have become the norm inside the House of Representatives, where some politicians now embrace the coronavirus precaution with colorful odes to their home districts. But there are holdouts: A small group of Republican representatives who have consistently declined to wear face coverings in Congress,” Tim Elfrink reports.
The corporate front:
- Bank profits plunged nearly 70 percent in the first quarter: “The Federal Deposit Insurance Corporation reported that ‘deteriorating economic activity’ caused lenders to write off delinquent debt and set aside billions of dollars to guard against future losses. Over half of all banks reported a profit decline, and 7.3 percent of lenders were unprofitable,” Reuters’s Pete Schroeder reports.
- Hilton cutting about 22 percent of global corporate workforce: “The job reductions amount to 2,100 corporate employees, Hilton said … The hospitality company said it is also extending its corporate pay cuts, reduced hours and furloughs for up to three more months,” the WSJ’s Allison Prang and Craig Karmin report.
- Airbnb is poised for a comeback: “The company said that over the weekend of June 5–7, gross booking value grew in year-over-year terms for the first time since February, when the coronavirus began to devastate its business,” CNBC’s Deirdre Bosa reports.
Around the world:
- India records massive daily spike in covid-19 deaths: “India’s Health Ministry reported 2,003 deaths attributed to the coronavirus, several times more than the daily average toll of around 300, after more than 1,600 previously unreported fatalities were included,” Paul Schemm reports.
- Honduran president tests positive: “President Juan Orlando Hernández said late Tuesday that he had tested positive for coronavirus, but was only suffering from mild symptoms and would continue in his job,” Claudia Mendoza and Mary Beth Sheridan report from Tegucigalpa.
- New Zealand changes quarantine policies: The announcement followed “the revelation that two women who were given special permission to visit a dying relative had come into contact with at least 320 people before testing positive …,” Antonia Farzan reports.
Morgan Stanley’s former global chief sues bank for racial discrimination.
The suit is the latest to allege that Wall Street remains dominated by white men: “A former Morgan Stanley executive who oversaw the bank’s global diversity efforts filed a lawsuit against the firm Tuesday alleging racial bias for silencing and retaliating against employees who sought to make it more inclusive,” Tracy Jan and Renae Merle report.
“Marilyn Booker, a former managing director who spent 16 years as global head of diversity and the last decade as head of the bank’s urban markets groups, filed the lawsuit on behalf of black female employees who are accusing the bank of systemic discrimination against black financial advisers and trainees. Booker, then the sole black female managing director in the wealth management division at Morgan Stanley’s New York City headquarters, was terminated in December after she had spent months outlining a plan to address the firm’s lack of diversity and what her lawsuit referred to as the company’s toxic workplace culture for employees of color.”
- The bank’s response. From spokeswoman Mary Claire Delaney, in a statement: “We are steadfast in our commitment to improve the diversity of our employees and have made steady progress — while recognizing that we have further progress to make. We will continue to advance our high priority efforts to achieve a more diverse and inclusive firm.”
Black CEOs in Silicon Valley say humiliation comes with the job: “Will Hayes has grown accustomed to an awkward start to business meetings. On numerous occasions, venture capitalists would confuse Hayes, the head of software company Lucidworks Inc., with another man on his executive team. The investor would introduce himself, extend a handshake to the other guy and say, ‘Good to meet you, Will.’ It’s strange because they don’t look alike. Also, Hayes is Black, and his deputy is White,” Bloomberg News’s Priya Anand and Sarah McBride report.
“Interviews with 20 Black tech leaders depict a position of power that can sometimes feel powerless. Repeated assumptions that they’re not in charge of their own companies, a common experience among Black chief executive officers, can instill a lingering sense of self-doubt. They describe a career of subtle slights or outright discrimination in which they face regular inquisition about their credentials and peculiar suggestions to hire a White business partner to make investors more comfortable.”
Some Adidas staff ask board to investigate HR chief: “Some employees at Adidas AG are calling on the company’s supervisory board to investigate its chief human-resources officer and create an anonymous public platform to submit complaints about racism, after the sportswear giant promised to hire more people of color and invest in black communities,” the WSJ’s Khadeeja Safdar reports.
When superpowers collide
Pompeo tries to ease tensions with the Chinese in Hawaii.
The two sides are set to meet face-to-face for the first time in months: “Secretary of State Mike Pompeo is making a brief trip to Hawaii for closed-door talks with a senior Chinese official, as relations between the two nations have plummeted over numerous disputes,” the Associated Press’s Matthew Lee reports.
“The State Department said Pompeo and his deputy Stephen Biegun left Tuesday for Hawaii but offered no additional detail about his plans … Pompeo and Biegun will meet [today] with a Chinese delegation led by Yang Jiechi, the Chinese Communist Party’s top foreign affairs official The private discussions are set to take place at Hickam Air Force Base in Honolulu and will cover the wide range of issues that have set the world’s two largest economies on a collision path.”
Lighthizer to tell lawmakers it’s time to reconsider the U.S. tariff commitment to the WTO.
The development could roil the WTO: “’Currently, outdated tariff determinations are locked in place that no longer reflect members’ policy choices and economic conditions,’ Trump’s trade chief, Robert Lighthizer says in prepared remarks to be delivered to the Senate Finance Committee starting at 3 p.m. in Washington. He’s scheduled to testify earlier in the day to the House Ways and Means Committee,” Bloomberg’s Bryce Baschuk reports.
“Lighthizer’s plan is to launch a formal renegotiation of American tariff commitments at the WTO by threatening to increase U.S. tariff ceilings… agreed to by previous administrations over decades of negotiations … [Such a move] would be the most significant shift in U.S. trade policy over the past quarter century and would have myriad implications for the WTO’s other 163 members.”
Facebook and Google heads are open to testifying in front of Congress as antitrust scrutiny intensifies.
Apple’s participation remains unclear: “Facebook CEO Mark Zuckerberg and Google CEO Sundar Pichai signaled they are open to testifying to Congress as part of lawmakers’ ongoing antitrust probe into the tech industry …,” Tony Romm reports.
“If lawmakers proceed as planned, the hearing could represent the most high-profile, public grilling of the tech industry’s most powerful chief executives, a made-for-television moment that comes as federal agencies continue to probe whether Apple, Amazon, Facebook and Google threaten competition, and in the process, harm corporate rivals and consumers. In letters to committee leaders, Facebook and Google signaled they would dispatch their top executives as long as other tech giants’ leaders participate … Amazon chief executive Jeff Bezos also has signaled he will participate in the hearing, after the e-commerce giant initially resisted lawmakers’ demands, The Post reported this week. Bezos owns The Washington Post.”
Apple faces new antitrust probes in Europe: “Apple is facing new scrutiny from the European Commission over how the iPhone maker treats competitors on its App Store and in its mobile payment system,” Reed Albergotti reports.
“The commission said that a probe into the App Store was brought on by Spotify, the music-streaming service that has complained loudly about alleged mistreatment by Apple, and by an unnamed distributor of e-books and audiobooks … Every time an iPhone user subscribes to a service such as Spotify through Apple’s App Store, a portion of that fee, usually between 15 and 30 percent, goes to Apple. That fee has irked companies including Spotify, which has said it hurt its business and resulted in higher prices for its customers.”
Money on the Hill
Lawmakers introduce bill to change aircraft certifications after 737 Max crashes.
Boeing’s failures may change the process forever: “The legislation seeks to eliminate the ability of aircraft makers like Boeing to unduly influence the certification process. It marks the most significant step toward reforms following the 2018 and 2019 crashes, which sparked calls to change how the Federal Aviation Administration approves new airplanes,” Reuters’s Eric M. Johnson, Tracy Rucinski and David Shepardson report.
“U.S. Senate Commerce Committee Chairman Roger Wicker (R-Miss.) and ranking member Sen. Maria Cantwell (D-Wash.) said the proposal draws on crash reports, recommendations from aviation experts, reports from victims’ families, and a series of hearings over the past year.”
Warren learns to love fundraisers, again.
The senator’s disdain for the high-dollar affairs has changed as Democrats face the general election: “A reliable part of Sen. Elizabeth Warren’s pitch during her 14-month presidential bid came when she touted her refusal to hold high-dollar fundraisers for her campaign, a stance she hoped would give her an edge in a field that exceeded two dozen candidates,” Annie Linskey reports.
“On Monday night, however, Warren headlined a virtual fundraiser for Joe Biden. Her dog Bailey even made a cameo, walking by as the event proceeded. And in less than an hour, Warren raised $6 million for Biden’s campaign, making hers the highest grossing event that Biden has had to date. She raised three times as much as one headlined last month by Hillary Clinton, who along with her husband Bill, has constructed an enviable fundraising operation. Warren also outraised — on Biden’s behalf — Sen. Kamala D. Harris (D-Calif.) who starred in a recent Biden money event that brought in $3.5 million. (All are expected to be eclipsed next week by a new fundraising anchor, former president Barack Obama.)”
- She’s not done: “Warren also plans to appear at an event to raise money next month for the Democratic Senatorial Campaign Committee, which will benefit a host of Democratic candidates, according to a person familiar with the schedule.”
- Warren world’s defense: “We wanted to prove that Democrats could build a competitive campaign in a primary without selling the candidate’s time. We did,” said Paul Egerman, who was Warren’s presidential campaign treasurer. “We always said we would not unilaterally disarm against Republicans and do everything to help the party and candidates up-and-down the ticket. That’s what we are doing now and will continue to do until November.”
Appeals court sides against SEC in dispute over stock exchanges.
A U.S. appeals court ruled “that the Securities and Exchange Commission cannot force stock exchanges to conduct a costly experiment to see how the fees they charge and the incentives they offer affect brokers’ trading habits,” Reuters’s John McCrank reports.
“The SEC’s ‘Transaction Fee Pilot’ aimed to shed light on how lucrative rebate payments from exchanges to brokers for stock orders that others can trade against influence the brokers’ behavior. Critics of the practice, including institutional investors managing tens of trillions of dollars, said the payments create conflicts of interest by incentivizing brokers to send customer orders to exchanges that pay the biggest rebates rather than to those that would get the best results for their end clients.”
- Fed Chair Jay Powell is set to testify in front of the House Financial Services Committee
- USTR Robert Lighthizer testifies in front of the House Ways & Means Committee and the Senate Finance Committee on the administration’s trade policy for 2020
- The Labor Department releases weekly jobless claims
- The House Select Subcommittee on the Coronavirus holds hearing on “the unemployment pandemic”
- The House Ways & Means Subcommittee on Select Revenue Measures holds a hearing on tax relief during covid-19
- Smith & Wesson Brands is among the notable companies reporting its earnings
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