Watch Live: Mnuchin and Powell Testimony on Coronavirus Stimulus


In their first appearance before lawmakers on Tuesday, Treasury Secretary Steven Mnuchin and Fed Chair Jerome H. Powell said the economy remains in a fragile state and that they are working to ensure that aid is getting to businesses and households.

Mr. Mnuchin warned that the economy may never fully recover if states extend their shutdowns for months.

“There is the risk of permanent damage,” Mr. Mnuchin told members of the Senate Banking Committee.

His comments reflect the change in tone among administration officials, who have begun trying to shift the economic discussion away from more financial support to allowing states to reopen. In his opening remarks, Mr. Mnuchin said “it is so important to begin bringing people back to work in a safe way.”

Republicans and Democrats on the committee offered differing views on the pace of reopening. Senator Sherrod Brown, an Ohio Democrat, assailed Mr. Mnuchin for pushing workers to return to their jobs before it is safe, asking “how many workers should give their lives to increase our G.D.P. by a half percent?”

Senator Patrick J. Toomey, a Republican from Pennsylvania, said the purpose of the shutdowns were to prevent hospitals from being overwhelmed by patients and that those scenarios have been averted.

The Treasury secretary appeared to side with Mr. Toomey, arguing that reopening safely but expeditiously is critical for the health of the economy.

Mr. Mnuchin’s comments were somewhat more optimistic than those made by Mr. Powell, who has suggested that the simply reopening states without a vaccine or a sense that the virus will not resurface is unlikely to provide an immediate economic boost.

“I do think that people will be careful about resuming their typical spending behavior. So certain parts of the economy will recover much more slowly,” Mr. Powell said in an interview with “60 Minutes” on CBS, adding “for the economy to fully recover, people will have to be fully confident. And that may have to await the arrival of a vaccine.”

Lawmakers are grilling Mr. Mnuchin and Mr. Powell over their use of the $500 billion in CARES Act funding to help keep credit flowing through the economy. 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.

Fed chair says a ‘question looms’ over whether the policy response is enough.

Jerome H. Powell, the Federal Reserve chair, warned that the economy could face long-term damage if companies undergo “avoidable” insolvencies or if workers are out of jobs for an extended period, and reiterated that the economy may need more policy help to make it through the coronavirus period without lasting scars.

“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 both Congress and the Fed’s initial response to the coronavirus crisis had been historically large and fast.

“There is clear evidence that when you have a situation where people are unemployed for long periods of time, that can permanently weigh on their careers and their ability to go back to work,” he said, and that can weigh on the economy for years. “Equally so with small and medium-sized businesses, which are the jobs machine of our great economy.”

More than 20 million people lost jobs in April as the unemployment rate jumped to 14.7 percent, the worst readings since the Great Depression. Mr. Powell has suggested that the worst is yet to come, acknowledging in a “60 Minutes” interview that aired on Sunday that the unemployment rate could peak at more than 20 percent.

Mr. Mnuchin also acknowledged that unemployment would get worse before it gets better.

Powell hints that the Fed could expand municipal program.

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 lay 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, a Democrat from New Jersey.

“I try to stay at a fairly high level on this, I will just echo though, that 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, since 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.

Mnuchin says he is prepared to lose money on the CARES Act.

Treasury Secretary Steven Mnuchin, who has said that his base case is to not lose any of the $454 billion Congress allocated as part of the CARES Act, told lawmakers that he was willing to take risk with the capital lawmakers have given him.

“We are fully prepared to take losses in certain scenarios in that capital,” Mr. Mnuchin said. His comments were clearly intended to get ahead of lawmaker concerns about how Treasury and the Federal Reserve are deploying capital.

Both Republican and Democratic lawmakers and economists are beginning to suggest that Mr. Mnuchin and Jerome H. Powell, the Fed chair, may be proceeding too cautiously and not taking on enough risk as they try to shore up the economy.

Mr. Mnuchin, who had previously said his “base case” scenario is that the Treasury would return all $454 billion, changed that benchmark on Tuesday, saying the “base case” now is that the government will lose money.

“Our intention is that we expect to take some losses on these facilities,” he said in response to a question from Senator Mark Warner, a Virginia Democrat. Mr. Warner, along with Mr. Toomey, have been pressing the Treasury and Fed to deploy its capital aggressively and not worry about taking losses.

When the pandemic eventually recedes, the trajectory of the recovery will largely depend on whether the federal government went to the necessary lengths to keep businesses and households afloat.

Economists say proceeding too cautiously could prevent credit from getting to places where it is needed, undermining the recovery. The money Congress has given the Treasury is intended to provide a layer of insurance, ensuring that the Fed is not on the hook if a loan goes bad and that the Treasury will cover any losses. If the programs were expected to lose money as a base case, they might be able to extend loans to riskier borrowers, comfortable with the reality that some would probably default.

Most of the programs are not yet up and running, which Mr. Mnuchin noted in his remarks.

Asked about the CARES Act funding, Mr. Mnuchin said he had only allocated about half of the money but that he expected to disburse “all the capital as needed.”

“I’ve allocated about half of that and let me be clear, the only reason I have not allocated this fully is we are just getting these facilities up and running,” Mr. Mnuchin said.

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. The airline said it would “resume operations once the Covid-19 situation subsides.”

  • 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 Jim Tankersley, Alan Rappeport, Deborah Solomon, Michael Corkery, Alexandra Stevenson, Eduardo Porter, David Yaffe-Bellany, Hisako Ueno, Sapna Maheshwari, David McCabe, Ben Dooley, Carlos Tejada, Maria Abi-Habib, Keith Bradsher, Jeanna Smialek, Kate Conger, Rich Barbieri, Mohammed Hadi and Gregory Schmidt.



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