The Finance 202: Fed’s Powell warns Washington will remain on economic clean-up duty for foreseeable future

“Getting through the next four, five, six months, that is key,” Powell said at a news conference after the central bank’s last policy meeting of the year. “Clearly, there’s going to be a need for help there. And, you know, my sense and hope is that we’ll be getting that.”

Powell, in circumscribed Fed-speak, emphasized that the work the Fed and Congress need to do to repair the economic wreckage from the pandemic won’t be done even once the vast majority of the population is inoculated.

“We’re going to need to continue to provide support to this economy for quite a period of time,” he said, adding that although the economy “should be growing at a fairly healthy clip by the second half of next year, it’s going to be a while” before the labor market returns to the condition it was in at the beginning of this year.

From RSM chief economist Joe Brusuelas: 

For the central bank’s part, that means it will keep buying government debt and mortgage bonds until “substantial further progress has been made” toward a full recovery, the Fed said in updating its guidance. And most of its policymakers project the Fed will keep its benchmark interest rate near zero through at least 2023. The moves are aimed at encouraging economic activity by keeping borrowing costs low for individuals and businesses.

And as lawmakers self-impose a cap on their latest round of relief, Powell made clear strong investor appetite for government debt is giving Congress plenty of room to keep spending. Viewed through the lens of low real interest payments on the debt, “we’re actually on a more sustainable fiscal path,” Powell said. 

It’s a point some top economists have been emphasizing. From former top Obama economic adviser Jason Furman: 

Some economists faulted the Fed for not going even further. For example, the central bank for now has decided against shifting its asset purchases to longer-term bonds, which would further depress long-term interest rates. In a note, Pantheon Macroeconomics chief economist Ian Shepherdson called it a “real missed opportunity.”

And Powell declined to weigh in on the future of lending facilities it launched this year at the direction of the Cares Act. They are expiring, and it will fall in part on the incoming Biden administration to determine whether they should continue.

The Fed is wrapping up a year defined by the worst economic crisis in a century. In the near-term, a stalling recovery looks primed to deteriorate further. “November marked the slowest month of job growth since the spring, with the unemployment rate ticking down slightly from 6.9 to 6.7 percent,” Rachel Siegel notes. “Retail sales fell last month. Millions of Americans are behind on rent and utility bills, and nearly 8 million Americans have fallen into poverty since the summer.”

Yet the economy has also bounced back faster than most forecasters expected. And the central bank now sees a brighter picture unfolding next year than it anticipated just months ago. Per Rachel, “In their latest round of economic predictions since September, Fed leaders predict that unemployment will fall to 5 percent by the end of next year, and 4.2 by the end of 2022. Officials also showed a more hopeful outlook for GDP. In September, Fed leaders projected that GDP would grow 4 percent by the end of 2021 but revised those estimates to suggest growth of 4.2 percent.”

From former Treasury Department economist Ernie Tedeschi: 

The course of the pandemic will determine how the economy gets back on the road to recovery. Powell noted that economists’ projections to date have overestimated the havoc the crisis would wreak. He said the current spike in coronavirus infections “is so much larger” than what the country has seen so far that it is already registering in the economy, “particularly activity that involved people getting together in bars and restaurants, on airplanes, and hotels,” and other in-person commerce.

Following Republican demands, for example, the emerging compromise on Capitol Hill leaves out direct aid to state and local governments. The Fed chair said that decision “is entirely in the hands of Congress.”

But he did spell out the stakes, noting that budget shortfalls have forced state and local governments to lay off 1.3 million people since the start of the pandemic in March. That’s “a very large number of people to be out of work from just that one source,” he said — more than lost their jobs in the global financial crisis. “It’s a concern,” he said. 

The compromise includes a second round of stimulus checks. “The package emerging is expected to include hundreds of billions of dollars in aid for ailing small businesses and jobless Americans; tens of billions of dollars in aid for other critical needs, such as vaccine distribution and schools; and a one-time check of between $600 and $700 for millions of Americans below a certain income threshold,” Jeff Stein, Mike DeBonis and Seung Min Kim report.

“The relief bill is likely to be coupled with several other major legislative efforts — from legislation to fund federal agencies to a bipartisan effort to rein in surprise medical billing — that lawmakers could then pass into law in a matter of days.”

• The package includes $300 in enhanced jobless benefits. And, per my colleagues, “Democrats also secured $25 billion to establish a new program to provide emergency rental assistance, funding that could be used to cover past and future rent payments, as well as other related expenses.”
• Tensions are flaring as negotiations wrap up. Sens. Bernie Sanders (I-Vt.) and Joe Manchin III (D-W.Va.) got into a heated exchange on a Democratic conference call over Sanders’s demand for stimulus checks more generous than $600. “Manchin has said unemployment benefits are more essential to approve and helped spearhead a bipartisan compromise that Sanders has derided as insufficient.”
• President-elect Biden is embracing the deal. “The stimulus package is encouraging. It looks like it’s very, very close,” he said Wednesday. “It’s a down payment. An important down payment that’s going to have to be done. … It’s very important to get done.”
• The timing is tight. Per my colleagues: “Even if negotiators reach a deal Wednesday, clearing it through Congress by the Friday midnight deadline could be difficult. The House could vote as soon as Thursday, waiving its usual three-day rule for the review of legislation. The Senate would then have to secure unanimous consent among its 100 members to skip procedural hurdles and move to a final vote before the deadline. An objection from Sanders or any other senator could cause a brief government shutdown unless lawmakers agree to another short-term funding bill.”

They still laid off thousands of workers: “With few exceptions, big businesses are having a very different year from most of the country. Between April and September, one of the most tumultuous economic stretches in modern history, 45 of the 50 most valuable publicly traded U.S. companies turned a profit, a Washington Post analysis found,” Douglas MacMillan, Peter Whoriskey and Jonathan O’Connell report.

“Despite their success, at least 27 of the 50 largest firms held layoffs this year, collectively cutting more than 100,000 workers, The Post found. The data reveals a split screen inside many big companies this year. On one side, corporate leaders are touting their success and casting themselves as leaders on the road to economic recovery. On the other, many of their firms have put Americans out of work and used their profits to increase the wealth of shareholders.”

• Companies also sent billions to shareholders: “Walmart, whose CEO spent the past year championing the idea that businesses ‘should not just serve shareholders,’ nonetheless distributed more than $10 billion to its investors during the pandemic while laying off 1,200 corporate office employees.”

What the companies are saying: “The Post contacted all 27 large firms that held layoffs this year. Many said the cuts were not related to the pandemic, but instead a necessary part of broader ‘restructuring’ plans, where companies shift spending from declining lines of business to growing ones. In some cases, these plans were decided before the pandemic.”

Behind the big-business boom: “Millions of consumers spent more time and money online during government-mandated shutdowns, watching Netflix, viewing ads on Google and Facebook pages, filling Amazon shopping carts and turning the video-game business into a bonanza for Nvidia, Microsoft and others.” (Amazon founder and chief executive Jeff Bezos owns The Washington Post.)

• More than 16,928,000 cases have been reported; more than 306,000 have died. 
• Biden will receive the vaccine as soon as next week. Vice President Mike Pence is expected to get vaccinated live on television Friday. 
• Fauci says Moderna vaccine could be approved as soon as today: Anthony S. Fauci, the nation’s top infectious-disease expert, told CNBC that FDA authorization for emergency use for Moderna’s vaccine candidate could come today. An FDA advisory committee is scheduled to meet this morning to discuss Moderna’s vaccine, just as it did last week for Pfizer’s shot.
• FDA says Pfizer coronavirus vaccine contains extra doses: “The discovery potentially expands the country’s supply by millions of doses as the Trump administration negotiates with Pfizer to speed up the next round of vaccine deliveries,” Fenit Nirappil reports.
• Hospitals are being pushed to the brink: “Hospitals reported more than 110,000 coronavirus patients on each of the past two days, a record count for the pandemic, according to tracking by The Washington Post. That is more than three times the number they treated in September and nearly double that reported at the height of the spring surge,” Brittany Shammas, Ariana Eunjung Cha, Ben Guarino and Jacqueline Dupree report.
• Interior Secretary David Bernhardt has covid: “Bernhardt’s infection has set off a wave of tests among high-ranking department officials. He has spent the past two days in meetings with political appointees,” Darryl Fears and Juliet Eilperin report. The secretary was tested before a Cabinet meeting, which he did not end up attending.

• Top CEOs say vaccine mandates could be coming: “72 percent of current and recent CEOs of major companies signaled an openness to vaccine mandates, according to a poll held Tuesday at a virtual summit by the Yale Chief Executive Leadership Institute. The broad question did not specify whether the mandate would apply to all employees or just ones who needed to work in close proximity to customers and colleagues,” CNN Business’s Matt Egan reports.
• Amazon asks U.S. to include warehouse, grocery staff in vaccine plans: “The request shows how the country’s second-biggest private employer, with 800,000 workers in the United States, considers the vaccine important to keeping its staff safe and its facilities open. The U.S. National Retail Federation made a similar request on the industry’s behalf as well,” Reuters’s Jeffrey Dastin reports.
• Tyson Foods fires 7 after betting inquiry: “The company fired top managers at its largest pork plant after an independent investigation into allegations that they bet on how many workers would test positive for the coronavirus. Tyson said the investigation led by former U.S. Attorney General Eric Holder revealed troubling behavior …” the Associated Press reports.
• United launches effort to improve contact tracing: “The airline said it will begin asking domestic and international travelers this month to provide key contact information to aid the Centers for Disease Control and Prevention’s contact tracing efforts. …  The hope is that by collecting information directly from passengers, it can reduce the time it takes health officials to track travelers who may have been exposed to others on their flight who have tested positive for the coronavirus,” Lori Aratani reports.

• Macron has covid: “France’s presidential palace announced that President Emmanuel Macron tested positive for the coronavirus. He  was administered a test after he began to show symptoms associated with covid-19, the disease caused by the virus. The 42-year-old president will now isolate for the next seven days but will continue his work, the statement added,” Paul Schemm reports.
• South Korea is struggling to contain its biggest outbreak to date: “The country reported more than 1,000 new covid-19 cases for second straight day on Thursday. The country also saw its biggest daily number in coronavirus deaths at 22, bringing up the total fatality figures to 612,” Min Joo Kim reports from Seoul.

Major indexes diverged slightly as traders wait on stimulus: “The S&P 500 closed 0.2 percent higher at 3,701.17, just below a record closing high. The Nasdaq Composite gained 0.5 percent to end the day at 12,658.19, notching intraday and closing all-time highs, as Apple and Microsoft each popped more than 2 percent. The Dow Jones Industrial Average lagged, falling 44.77 points, or 0.15 percent, to 30,154.54,” CNBC’s Fred Imbert and Maggie Fitzgerald report.

Bitcoin surged past $20,000 for the first time: “It’s another benchmark in a mad-dash year that saw the digital currency more than double in value,” Hannah Denham reports.

“It operates through peer-to-peer digital exchanges without a centralized hub, and its trading history is marked by wild swings. Bitcoin was trading above $10,000 in February, just before the coronavirus crisis took hold and it slid to about $4,000 within weeks. It was back above $10,000 by October amid growing demand from institutional investors and tech firms and is now up more than 150 percent since the start of the year.”

She comes with deep Wall Street ties: “Biden is weighing Taylor for a number of positions, including administrator of the Small Business Administration … There was a specific discussion about that role over a week ago … although it’s unclear who else is in the running,” the New York Times’s Jonathan Martin and Maggie Haberman report.

“Taylor, a former managing director of Wolfensohn Fund Management and the former New York State banking superintendent under Gov. George E. Pataki (R), serves on the board of Citigroup and chairs the global nonprofit organization Accion. She is also the longtime partner of former Mayor Michael R. Bloomberg, and was the de facto first lady of New York City when he was in office.”

Biden launches bid to tame the Senate. The president-elect is publicly rolling out his team. Behind the scenes, Biden is “grappling with a grittier challenge that could be critical to his presidency — dealing with an unruly Senate,” Annie Linksey reports. “Biden’s strategy, displayed in private conversations and some public actions, features two goals, both exceedingly difficult: winning the two Senate runoffs in Georgia to seize a razor-thin Democratic majority, while forging alliances with key Republican senators.”

• Two outsiders are the frontrunners for Education secretary: “The first is Leslie T. Fenwick, dean emeritus of the Howard University School of Education and a professor of educational policy and leadership. The second is Miguel Cardona, who last year was named the top education official in Connecticut,” Laura Meckler and Valerie Strauss report.
• Biden says Pete Buttigieg will play key role in rebuilding country as Transportation secretary: “The choice of Buttigieg, who sought the Democratic presidential nomination and has an ardent following among some members of the party, will bring a dash of star power to what is normally a staid, if important, department. He would also represent another first for a president-elect who has promised to build the most diverse leadership team in history: an openly gay Cabinet nominee confirmed by the Senate,” Ian Duncan and Michael Laris report.

State regulators allege the trading platform targeted inexperienced investors: “In a 24-page complaint, the enforcement arm of the Massachusetts Securities Division said Robinhood failed to protect its customers and their assets, violating state laws and regulations. Robinhood exposed Massachusetts investors to ‘unnecessary trading risks’ by ‘falling far short of the fiduciary standard’ adopted this year that requires broker-dealers to act in their clients’ best interest, the state said,” according to WSJ’s Caitlin McCabe.

“The document focuses on the technological outages the platform has experienced and says Robinhood incentivizes frequent use, including by allowing customers with limited or no experience to attempt more complicated trades. Robinhood disagrees with the allegations, a spokeswoman said in a statement, and the company intends to defend itself vigorously.”

But the company appears to be losing ground: In 2010, a decade after agreeing to pay a $192.5 million race-discrimination settlement, Coke appeared to be successfully implementing far-reaching changes to its employment practices. Now, “that progress has reversed,” the WSJ’s Jennifer Maloney and Lauren Weber report. “The share of Black executives is back down to 8 percent, according to company data. And the representation of Black employees among Coke’s U.S. salaried staff is now 15 percent, or 5 percentage points lower than where it stood in 2000.”

Facebook says Apple is hurting small businesses: “Facebook said changes Apple has made to how easily advertisers can track iPhone users will disproportionately harm small businesses that rely on personalized advertisements to reach customers and find new ones. Facebook said its internal research has found that small businesses earned 60 percent less in sales when they were not able to use the kind of targeted advertising that Apple aims to limit,” Reed Albergotti reports.

Texas leads GOP attorneys general in new Google antitrust suit: “Ten states led by Texas Attorney General Ken Paxton (R) filed an antitrust lawsuit against Google, alleging the tech giant illegally sought to suppress competition and reap massive profits from targeted advertisements placed across the Web,” Tony Romm reports.

“The lawsuit — filed in a Texas federal court and backed exclusively by Republicans — strikes at the heart of Google’s lucrative business in connecting those who seek to buy online ads with the websites that sell them.”

Supreme Court will hear NCAA dispute over compensation for student athletes: “The justices accepted a petition from the NCAA defending its restrictions on compensation for some college basketball and football players, which could have major implications for the way college sports is governed and the authority granted to the NCAA,” Robert Barnes and Rick Maese report.

Hunger is rising in America. From Northwestern University economist Diane Schanzenbach:

• Fed Chair Jerome H. Powell meets the press after the FOMC meeting concludes
• The Labor Department reports weekly jobless claims
• FedEx, RiteAid and BlackBerry are among the notable companies reporting their earnings, per Kiplinger

• Fed Governor Lael Brainard gives a speech about climate change and financial regulation at the Center for American Progress
• Nike and Darden Restaurants are among the notable companies reporting their earnings