Fed Expects Unemployment Rate to Stay High: Live Updates

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The Federal Reserve left interest rates unchanged and near zero on Wednesday as the central bank projected a slow economic recovery from the pandemic-induced recession.

In their first economic projections this year, Fed officials indicated that they expected the unemployment rate to end 2020 at 9.3 percent and remain elevated for years, coming in at 5.5 percent in 2022. Output is expected to be 6.5 percent lower at the end of this year than it was in the final quarter of 2019.

“Nearly 20 million jobs have been lost on net since February,” the Fed chair, Jerome H. Powell, said at a news conference following the release of the forecast, and noted that the figure probably understates the extent of unemployment. “The downturn has not fallen equally on all Americans.”

The new forecasts predict a much slower path back to economic strength than the Trump administration — and perhaps the stock market — seems to expect as the economy climbs out of a virus-spurred downturn. The Fed skipped its quarterly economic summary in March as the pandemic gripped the United States, sowing uncertainty as business activity came to a near standstill.

The Fed said that it would continue buying government-backed debt “at least at the current pace” to sustain smooth market functioning, and that it “will closely monitor developments and is prepared to adjust its plans as appropriate.”

Mr. Powell said that the Fed would do “whatever we can, and for as long as it takes” to support the recovery and “limit lasting damage” to the economy.

The U.S. budget deficit has nearly doubled because of pandemic relief spending.

The United States budget deficit grew to a record $1.88 trillion for the first eight months of this fiscal year, as the federal government shoveled economic relief money to Americans and delayed tax payments, the Treasury Department said on Wednesday.

In May, the budget deficit grew to $399 billion, up 92 percent from the same month a year ago. The shortfall was driven largely by billions of dollars of economic impact payments and unemployment insurance that the federal government has deployed to buttress an economy that has been crippled by the coronavirus pandemic, The New York Times’s Alan Rappeport reports.

The monthly figure represented the largest budget deficit for the month of May on record. However, it was less than the record gap of $738 billion in April.

The deficit for the eight months through May is nearly double the shortfall for last year of $984 billion.

Republicans in Congress and the Trump administration have been expressing concern about the deficit as lawmakers begin to consider another round of economic stimulus legislation. Treasury Secretary Steven Mnuchin has said that the government is paying low interest rates on the debt, but that the future relief measures should be more focused on industries that have been hit hardest by the pandemic.

The deficit numbers are expected to continue to grow later this year, as outlays from the $660 billion Paycheck Protection Program are reflected in the data. Government receipts should pick up in July, however, when tax payments that were delayed from April start to come in.

Mnuchin says economy will need more financial help.

Treasury Secretary Steven Mnuchin told lawmakers on Wednesday that the next round of economic stimulus legislation must help industries that have been hit hardest by the coronavirus pandemic and that the focus must be on creating incentives to get jobless workers rehired.

Testifying before the Senate’s small-business committee, Mr. Mnuchin said that he was pleasantly surprised that the economy had added 2.5 million jobs last month and that he believed the economy would improve sharply in the second half of the year.

“We remain confident that the overall economy will continue to improve dramatically in the third and fourth quarter,” Mr. Mnuchin said in his opening remarks.

The Treasury secretary added, however, that there was still “significant damage” to parts of the economy that needed to be addressed.

The White House has held off on negotiating with Congress over another economic relief package so that they can more thoroughly assess how the existing measures are working. However, Mr. Mnuchin made clear that the work of stabilizing the economy was not done.

“There’s no question that small businesses in many industries are going to need more help,” he said.

Mr. Mnuchin said that the administration would be looking at measures that will encourage businesses to rehire. It was also considering the need for more direct payments to Americans and adjustments to unemployment insurance benefits to ensure that people did not have incentives to remain jobless.

[How do you feel about going back to work? Share your story.]

Tesla shares hit $1,000 weeks after Elon Musk said they were ‘too high’.

Wall Street believes it’s a great time to be a business of making electric vehicles.

Take Tesla. On Wednesday morning, the company’s share price rose above $1,000 for the first time ever, giving it a market value of about $185 billion. At that price, the company is second only to one other car manufacturer, Toyota, which is valued at about $215 billion. That’s despite the fact that Tesla produces and sells far fewer vehicles than Toyota and other major car companies.

Tesla’s many critics say the shares are overvalued. And even the company’s chief executive, Elon Musk, said last month that the stock price was “too high” at about $760 per share. But the stock has been soaring for months on the promise that the company will revolutionize the automotive industry.

Some recent good news has lifted Tesla’s share price even higher. The company’s California factory reopened last month after it had been closed for weeks under a local shutdown order intended to limit the spread of the coronavirus, allowing it to accelerate production of its anticipated sport utility vehicle, the Model Y. And sales of vehicles produced at Tesla’s Shanghai factory reportedly recovered in May.

“While the stock has been roaring higher, we believe the main fundamental catalyst continues to be the massive China market which is showing clear signs of a spike in demand,” Daniel Ives, managing director of equity research at Wedbush Securities, said in a note on Tuesday.

On Wednesday, Mr. Musk told staff in a memo that it was also time for the company to ramp up production of the Tesla Semi commercial truck, according to Reuters. That might be in response to Nikola, an Arizona-based electric truck start-up whose stock has rocketed since it went public last week.

After an initial rush, $130 billion is still sitting in the small-business relief fund.

About $130 billion is sitting in the federal government’s Paycheck Protection Program, waiting to be tapped by small businesses hurt by the pandemic.

When it was opened in April with $349 billion, the paycheck program ran out of money in less than two weeks, prompting Congress to swiftly approve additional funding of $310 billion. The outflow of money has been slower since. Many small businesses are wary of borrowing, mainly because they find the program’s rules confusing and limiting.

Even more striking is the fact that on many days last month, more money was coming back into the fund than going out — meaning that businesses that had received the money were returning it. Some public companies that received money returned it after a public outcry. Some small businesses got duplicate loans, and that money has been returned, too. But there are thousands of small businesses that have sent back the money because they do not think they can use it as the program intended — to mostly pay workers.

The world economy is facing the most severe recession in a century and could experience a halting recovery as policymakers brace for a potential second wave of the coronavirus and as countries embrace protectionist policies, the Organization for Economic Cooperation and Development warned in a new report.

A grim economic outlook released by the O.E.C.D. on Wednesday depicted a world economy that is walking on a “tightrope” as countries seek to reopen after three months of lockdowns. Considerable uncertainty remains, however, as the prospects and timing of a vaccine remain unknown. Health experts fear that the spread of the virus could accelerate again later this year.

“Extraordinary policies will be needed to walk the tightrope towards recovery,” said Laurence Boone, the O.E.C.D.’s chief economist.

The O.E.C.D., which comprises 37 of the world’s leading economies, predicts that the global economy will contract 6 percent this year if a second wave of the virus is avoided. If a second wave does occur, world economic output would fall 7.6 percent, before rebounding by 2.8 percent in 2021. The two scenarios are viewed as equally plausible.

Barring a second wave, the O.E.C.D. expects the United States economy to shrink 7.3 percent and the euro area to shrink 9 percent. Among developed countries, Britain’s predicted fall was the steepest, at 11.5 percent. Emerging economies like Brazil, Russia and South Africa, will be hit hard given the strain on their already fragile health systems.

U.S. stocks recovered from their losses and moved higher Wednesday after the U.S. Federal Reserve promised to keep interest rates low and continue to bolster an economy ravaged by the coronavirus.

The S&P 500, which had fallen as much as 0.8 percent earlier in the day, was about 0.3 percent higher following the Fed’s announcement.

The Fed said that it will continue buying government-backed debt “at least at the current pace” to sustain smooth market functioning, and that it “will closely monitor developments and is prepared to adjust its plans as appropriate.”

The Fed’s projections suggested that interest rates will remain near rock-bottom for the foreseeable future.

At the same time, the central bank issued its first economic forecasts of the year, indicating that officials believe the unemployment rate would end 2020 at 9.3 percent and remain elevated for years, coming in at 5.5 percent in 2022.

The Fed skipped its quarterly economic summary in March as the pandemic gripped the United States, sowing uncertainty as business activity came to a near standstill.

Investors were also sizing up a pessimistic forecast issued Wednesday by the Organization for Economic Cooperation and Development that warned that the world economy was facing the most severe downturn in a century.

Investors have recently taken heart in signs that the global economy is on the mend, particularly in China, Europe and the United States. They have also been cheered by government and central bank efforts to use money to fight the global freeze. On Monday, the S&P 500 erased its losses for this year.

But that rally cooled in recent days as concerns grew about a second wave of the virus. Infections are still rising in many U.S. states and public health officials are concerned that the nationwide protests over police brutality may lead to new cases of the virus.

When employees at Salesforce, the cloud software giant based in San Francisco, eventually return to their office towers, they may find that the fun is gone from their famously fun-loving workplaces.

No more chatting in the elevator. No hugging. No more communal snack jars.

Before employees can even enter the office, they will be required to fill out online health surveys and take their temperature. For those who pass the health screening and have a good reason to go in, Salesforce will schedule their shifts — and send them digital entry tickets for the lobby with an arrival time.

These new command-and-control work practices are intended to help protect Salesforce’s more than 50,000 employees as the company undertakes a colossal task: figuring out how to safely reopen its more than 160 offices around the world.

“It’s going to be different,” Salesforce’s chief executive, Marc Benioff, said. “It’ll be more sterile. It’ll be more hospital-like.”

Salesforce’s vision of a more micromanaged workplace is indicative of the complexities that many businesses are grappling with during the pandemic and signals a significant cultural shift for office workers across the United States.

Catch up: Here’s what else is happening.

  • Simon Property Group, the biggest mall operator in the United States, said on Wednesday that it was terminating its $3.6 billion agreement to buy Taubman Centers, which operates malls including the Mall at Short Hills in New Jersey and Westfarms in Connecticut. Simon Property said that the pandemic “had a uniquely material and disproportionate effect on Taubman compared with other participants in the retail real estate industry.” It is the second prominent retail deal to fall apart because of the pandemic, following the termination of the sale of Victoria’s Secret to a private equity firm last month.

  • Starbucks on Wednesday said that it expected to lose up to $3.2 billion in revenue in the current quarter, with an operating income decline of up to $2.2 billion. The coffee chain said it would permanently close about 400 stores in the Americas over the next 18 months.

  • AMC Theaters, the world’s largest cineplex operator, announced on Tuesday that “almost all” of its locations in the United States and Britain would reopen next month. Over all, theaters in 90 percent of overseas markets will be running again by mid-July, according to the National Association of Theater Owners, a trade organization for movie exhibitors in 98 countries.

  • Shares of Chesapeake Energy, a pioneer in extracting natural gas from shale rock, went on a wild ride on Tuesday amid reports that it was preparing a bankruptcy filing. Trading was halted for more than three hours in the morning. When buying and selling resumed, the trading was quickly interrupted again by circuit breakers. The company’s shares closed just below $24 for a loss of about 66 percent for the day.

Reporting was contributed by Niraj Chokshi, Alan Rappeport, Jeanna Smialek, Stacy Cowley, Sapna Maheshwari, Michael J. de la Merced, Natasha Singer, Mohammed Hadi, Jason Karaian, Brooks Barnes, Karen Weise and Clifford Krauss.



Source : Nytimes