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    Treasury to Invest $9 Billion in Minority Communities

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    AdvertisementContinue reading the main storySupported byContinue reading the main storyTreasury to Invest $9 Billion in Minority CommunitiesTreasury Secretary Janet Yellen is making Community Development Financial Institutions central to achieving an inclusive economy.Sunshine Foss at her wine and spirits store, Happy Cork, in Brooklyn in November. Her store focuses on Black- and other minority-owned labels.Credit…Joshua Bright for The New York TimesMarch 4, 2021Updated 4:13 p.m. ETWASHINGTON — The Biden administration unveiled a plan on Thursday to invest $9 billion in minority communities, taking an initial step in fulfilling its promise to ensure that those who have been hit hardest by the pandemic have access to loans as the economy recovers.The Treasury Department said it was opening the application process for its Emergency Capital Investment Program, which will provide a major infusion of funds to Community Development Financial Institutions and Minority Depository Institutions as they look to step up lending.The effort is a priority of Treasury Secretary Janet L. Yellen, who has warned that the fallout from the pandemic is exacerbating inequality in the United States.“America has always had financial services deserts, places where it’s very difficult for people to get their hands on capital so they can, for example, start a business,” Ms. Yellen said in a statement. “But the pandemic has made these deserts even more inhospitable.”She added: “The Emergency Capital Investment Program will help these places that the financial sector hasn’t typically served well.”Ms. Yellen has for years been an advocate for Community Development Financial Institutions, arguing that they are an important tool for fostering a more inclusive economy.The relief programs that were rolled out in 2020, such as the Paycheck Protection Program, for small businesses, drew criticism from minority groups, who said Black- and other minority-owned businesses were at a disadvantage in applying for a limited pool of funds because many had weaker banking relationships than their white-owned counterparts. A Federal Reserve Bank of New York study last year found that Black-owned businesses suffered the sharpest rate of closures in the first part of 2020.The Treasury Department is using funds that were approved in the $900 billion stimulus package that was passed in December and signed by former President Donald J. Trump.Community Development Financial Institutions, which provide affordable lending options to low-income consumers and businesses, were largely neglected under Mr. Trump and his Treasury Department. President Biden and Ms. Yellen have signaled that they will be critical for improving racial equity in the United States.The new program will make direct investments in local lenders that support small businesses and consumers in low-income communities. The investments will have low interest rates and provide lenders with greater incentives to offer small loans to those who are most in need, both in rural areas and in places where poverty is persistent.Treasury officials said they wanted the new program to reinforce the health of Community Development Financial Institutions. The department is also putting in place two separate programs to that will provide an additional $3 billion in grants and other support to the lenders.AdvertisementContinue reading the main story More

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    What the Bond Market Is Telling Us About the Biden Economy

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    AdvertisementContinue reading the main storyUpshotSupported byContinue reading the main storyWhat the Bond Market Is Telling Us About the Biden EconomyA recent rise in interest rates hints that a recovery is on the way, but it could also mean harder choices ahead on spending.Feb. 23, 2021, 5:00 a.m. ETTreasury Secretary Janet Yellen, right, at a White House meeting this month. She has emphasized that interest rates are crucial in determining how much the government should borrow and spend.Credit…Carlos Barria/ReutersWhile Washington debates the size of a new economic rescue plan, the bond market is sending a message: A meaningful acceleration in both growth and inflation in the years ahead looks more likely now than it did just a few weeks ago.That would be mostly good news, suggesting an economy recovering quickly from the pandemic. Interest rates remain very low by historical standards, even for the longest-term securities. Bond prices imply that inflation will be consistent with the Federal Reserve’s target of 2 percent annual rises in consumer prices, not a more worrisome spiral.[embedded content]But the surge in rates has brought an end to a period of several months when borrowing was essentially free, seemingly far into the future. For the Biden administration and the Federal Reserve, that implies that the free-lunch stage of the crisis is ending, and there could be harder questions ahead.In particular, it means that the downside of bad policy — federal spending that doesn’t generate much economic activity, for example — is higher than it was as recently as December.“We’re at a place where the markets are starting to grapple with the question of whether there are trade-offs between more stimulus today and potentially higher rates and more inflation down the road,” said Nathan Sheets, chief economist of PGIM Fixed Income and a former official at the Treasury and the Fed.The yield on 10-year Treasury bonds — the rate the United States government must pay to borrow money for a decade — was 1.37 percent Monday, low by historical standards but well above its recent low of 0.51 percent in August and 0.92 percent at the end of December. Those higher Treasury rates generally translate into higher mortgage rates and corporate borrowing costs, so the surge could take some of the air out of bubbly housing and financial markets.The inflation-adjusted interest rate the United States Treasury must pay to borrow money for 30 years was negative for much of the last year, meaning the government would pay investors back less in inflation-adjusted terms than it borrowed. Last week, the rate rose into positive territory for the first time since June and closed at 0.06 percent Monday. (For shorter time horizons, the “real yield” remains in negative territory.)That’s particularly striking given that Fed officials have repeatedly said they expect the short-term interest rate target they control to be near zero for quite some time — and bond investors appear to believe them. The yield on two-year Treasuries has barely budged in the same span.What is happening is known as a “steepening of the yield curve,” with long-term rates rising as short-term rates hold still. It tends to presage faster economic growth; it is the opposite of a “yield curve inversion,” which is known as a harbinger of recessions.But the flip side is that the moment appears to have passed when bond markets were giving the government an all-clear signal to do whatever was necessary to boost the economy, essentially making endless funding available at extraordinarily low cost. That could have implications for how the Biden administration approaches the rest of its economic agenda.Treasury Secretary Janet Yellen has emphasized that low interest rates, which keep the cost of debt service low, are important in her thinking about how much the government can comfortably borrow and spend.At The New York Times’s DealBook conference on Monday, Ms. Yellen, after noting that the government’s ratio of debt to the size of the economy is much larger than it was before the global financial crisis, said: “Look at a different metric, which is more important, which is what is the cost of that debt. Look for example at interest payments on the debt as a share of G.D.P.,” which is below 2007 levels.“So I think we have more fiscal space than we used to because of the interest rate environment,” Ms. Yellen told the Times’s Andrew Ross Sorkin.By implication, the further that bond yields rise, and inflation expectations along with them, the more the Biden administration would view their potential spending to be constrained. Congress is now at work on a $1.9 trillion pandemic aid package, which Democratic leaders hope to pass in March. They envision a large-scale infrastructure plan after that.Jerome Powell, the Federal Reserve chair, will face questions from Congress on Tuesday about the central bank’s policies. In other recent appearances, he has emphasized the importance of returning the economy to full health above all other goals, and stressed that inflation has been persistently too low rather than too high over the last decade.“Fed Chair Powell has taken each and every opportunity to reassure investors that the Fed would consider near-term inflationary pressure to be transitory,” said Katie Nixon, chief investment officer at Northern Trust Wealth Management. “The market is taking the Fed at its word that short rates will be anchored at zero for a considerable time.”The gap between the prices of regular and inflation-protected bonds as of Friday’s close imply that the Consumer Price Index is expected to rise 2.29 percent a year over the next five years, and 1.99 percent a year for the five years after that. The Fed aims for 2 percent annual inflation as measured by a different index that tends to be somewhat lower, meaning these so-called “inflation break-evens” are broadly consistent with the central bank’s goals.Put it all together, and the surge in rates so far is basically an optimistic sign that the post-pandemic economy will mark the end of a long period of sluggish growth. But the speed of the adjustment is a reminder that the line between too hot and just right is a narrow one.AdvertisementContinue reading the main story More

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    How Full Employment Became Washington’s Creed

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    #masthead-section-label, #masthead-bar-one { display: none }The Jobs CrisisCurrent Unemployment RateThe First Six MonthsPermanent LayoffsWhen a $600 Lifeline EndedAdvertisementContinue reading the main storySupported byContinue reading the main storyHow Full Employment Became Washington’s CreedPolicymakers are eager to return to the period of low unemployment that preceded the pandemic and are less concerned than in previous eras about sparking inflation and taking on debt.People wait in line to receive donations at a food pantry in New York City earlier this month. Policymakers agree that a return to a hot job market should be a central goal.Credit…Mohamed Sadek for The New York TimesJan. 18, 2021, 3:29 p.m. ETAs President-elect Joseph R. Biden, Jr. prepares to take office this week, his administration and the Federal Reserve are pointed toward a singular economic goal: Get the job market back to where it was before the pandemic hit.The humming labor backdrop that existed 11 months ago — with 3.5 percent unemployment, stable or rising work force participation and steadily climbing wages — turned out to be a recipe for lifting all boats, creating economic opportunities for long-disenfranchised groups and lowering poverty rates. And price gains remained manageable and even a touch on the low side. That contrasts with efforts to push the labor market’s limits in the 1960s, which are widely blamed for laying the groundwork for runaway inflation.Then the pandemic cut the test run short, and efforts to contain the virus prompted joblessness to skyrocket to levels not seen since the Great Depression. The recovery has since been interrupted by additional waves of contagion, keeping millions of workers sidelined and causing job losses to recommence.Policymakers across government agree that a return to that hot job market should be a central goal, a notable shift from the last economic expansion and one that could help shape the economic rebound.Mr. Biden has made clear that his administration will focus on workers and has chosen top officials with a job market focus. He has tapped Janet L. Yellen, a labor economist and the former Fed chair, as his Treasury secretary and Marty Walsh, a former union leader, as his Labor secretary.In the past, lawmakers and Fed officials tended to preach allegiance to full employment — the lowest jobless rate an economy can sustain without stoking high inflation or other instabilities — while pulling back fiscal and monetary support before hitting that target as they worried that a more patient approach would cause price spikes and other problems.That timidity appears less likely to rear its head this time around.Mr. Biden is set to take office as Democrats control the House and Senate and at a time when many politicians have become less worried about the government taking on debt thanks to historically low borrowing costs. And the Fed, which has a track record of lifting interest rates as unemployment falls and as Congress spends more than it collects in taxes, has committed to greater patience this time around.“Economic research confirms that with conditions like the crisis today, especially with such low interest rates, taking immediate action — even with deficit finance — is going to help the economy, long-term and short-term,” Mr. Biden said at a news conference on Jan. 8, highlighting that quick action would “reduce scarring in the work force.”Jerome H. Powell, the Fed chair, said on Thursday that his institution is tightly focused on restoring rock-bottom unemployment rates.“That’s really the thing that we’re most focused on — is getting back to a strong labor market quickly enough that people’s lives can get back to where they want to be,” Mr. Powell said. “We were in a good place in February of 2020, and we think we can get back there, I would say, much sooner than we had feared.”The stage is set for a macroeconomic experiment, one that will test whether big government spending packages and growth-friendly central bank policies can work together to foster a fast rebound that includes a broad swath of Americans without incurring harmful side effects.“The thing about the Fed is that it really is the tide that lifts all boats,” said Nela Richardson, chief economist at the payroll processor ADP, explaining that the labor-focused central bank can set the groundwork for robust growth. “What fiscal policy can do is target specific communities in ways that the Fed can’t.”The government has spent readily to shore up the economy in the face of the pandemic, and analysts expect that more help is on the way. The Biden administration has suggested an ambitious $1.9 trillion spending package.President-elect Joseph R. Biden Jr. has appointed top officials with a job market focus.Credit…Amr Alfiky/The New York TimesWhile that probably won’t pass in its entirety, at least some more fiscal spending seems likely. Economists at Goldman Sachs expect Congress to actually pass another $1.1 trillion in relief during the first quarter of 2021, adding to the $2 trillion pandemic relief package passed in March and the $900 billion in additional aid passed in December.That would help to stoke a faster recovery this year. Goldman economists estimate that the spending could help to push the unemployment rate to 4.5 percent by the end of 2021. Joblessness stood at 6.7 percent in December, the Bureau of Labor Statistics said earlier this month.Such a government-aided rebound would come in stark contrast to what happened during the 2007 to 2009 recession. Back then, Congress’s biggest package to counter the fallout of the downturn was the $800 billion American Recovery and Reinvestment Act, passed in 2009. It was exhausted long before the unemployment rate finally dipped below 5 percent, in early 2016.At the time, concern over the deficit helped to stem more aggressive fiscal policy responses. And concerns about economic overheating pushed the Fed to begin lifting interest rates — albeit very slowly — in late 2015. As the unemployment rate dropped, central bankers worried that wage and price inflation might wait around the corner and were eager to return policy to a more “normal” setting.But economic thinking has undergone a sea change since then. Fiscal authorities have become more confident running up the public debt at a time of very low interest rates, when it isn’t so costly to do so.Fed officials are now much more modest about judging whether or not the economy is at “full employment.” In the wake of the 2008 crisis, they thought that joblessness was testing its healthy limits, but unemployment went on to drop sharply without fueling runaway price increases.In August 2020, Mr. Powell said that he and his colleagues will now focus on “shortfalls” from full employment, rather than “deviations.” Unless inflation is actually picking up or financial risks loom large, they will view falling unemployment as a welcome development and not a risk to be averted.That means interest rates are likely to remain near zero for years. Top Fed officials have also signaled that they expect to continue buying vast sums of government-backed bonds, about $120 billion per month, for at least months to come.Fed support could help government spending kick demand into high gear. Households are expected to amass big savings stockpiles as they receive stimulus checks early in 2021, then draw them down as vaccines become widespread and normal economic life resumes. Low rates might make big investments — like houses — more attractive.Still, some analysts warn that today’s policies could result in future problems, like runaway inflation, financial market risk-taking or a damaging debt overhang.In the mid-to-late 1960s, Fed officials were tightly focused on chasing full employment. As they tested how far they could push the job market, they did not try to head inflation off as it crept up and saw higher prices as a trade off for lower joblessness. When America took its final steps away from the gold standard and an oil price shock hit in the early 1970s, price gains took off — and it took massive monetary belt-tightening by the Fed and years of serious economic pain to tame them.Many politicians have become less worried about government borrowing thanks to historically low interest rates.Credit…Erin Schaff/The New York TimesThere are reasons to believe that this time is different. Inflation has been low for decades and remains contained across the world. The link between unemployment and wages, and wages and prices, has been more tenuous than in decades past. From Japan to Europe, the problem of the era is weak price gains that trap economies in cycles of stagnation by eroding room to cut interest rates during time of trouble, not excessively fast inflation.And economists increasingly say that, while there may be costs from long periods of growth-friendly fiscal and monetary policy, there are also costs from being too cautious. Tapping the brakes on a labor market expansion earlier than is needed can leave workers who would have gotten a boost from a strong job market on the sidelines.The period before the pandemic showed just what an excessively cautious policy setting risks missing. By 2020, Black and Hispanic unemployment had dropped to record lows. Participation for prime-age workers, which was expected to remain permanently depressed, had actually picked up somewhat. Wages were climbing fastest for the lowest earners.It’s not clear whether 3.5 percent unemployment will be the exact level America will achieve again. What is clear is that many policymakers want to test what the economy is capable of, rather than guessing at a magic figure in advance.“There’s a danger in computing a number and saying, that means we are there,” Mary C. Daly, the president of the Federal Reserve Bank of San Francisco, said at an event earlier this month. “We’re going to learn about these things experientially, and that to me is the right risk management posture.”AdvertisementContinue reading the main story More

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    The Business Rules the Trump Administration Is Racing to Finish

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    #masthead-section-label, #masthead-bar-one { display: none }The Presidential TransitionLatest UpdatesHouse Moves to Remove TrumpHow Impeachment Might WorkBiden Focuses on CrisesCabinet PicksAdvertisementContinue reading the main storySupported byContinue reading the main storyThe Business Rules the Trump Administration Is Racing to FinishFrom tariffs and trade to the status of Uber drivers, regulators are trying to install new rules or reduce regulations before President-elect Joe Biden takes over.President Trump is rushing to put into effect new economic regulations and executive orders before his term comes to a close.Credit…Erin Schaff/The New York TimesJan. 11, 2021, 3:00 a.m. ETIn the remaining days of his administration, President Trump is rushing to put into effect a raft of new regulations and executive orders that are intended to put his stamp on business, trade and the economy.Previous presidents in their final term have used the period between the election and the inauguration to take last-minute actions to extend and seal their agendas. Some of the changes are clearly aimed at making it harder, at least for a time, for the next administration to pursue its goals.Of course, President-elect Joseph R. Biden Jr. could issue new executive orders to overturn Mr. Trump’s. And Democrats in Congress, who will control the House and the Senate, could use the Congressional Review Act to quickly reverse regulatory actions from as far back as late August.Here are some of the things that Mr. Trump and his appointees have done or are trying to do before Mr. Biden’s inauguration on Jan. 20. — Peter EavisProhibiting Chinese apps and other products. Mr. Trump signed an executive order on Tuesday banning transactions with eight Chinese software applications, including Alipay. It was the latest escalation of the president’s economic war with China. Details and the start of the ban will fall to Mr. Biden, who could decide not to follow through on the idea. Separately, the Trump administration has also banned the import of some cotton from the Xinjiang region, where China has detained vast numbers of people who are members of ethnic minorities and forced them to work in fields and factories. In another move, the administration prohibited several Chinese companies, including the chip maker SMIC and the drone maker DJI, from buying American products. The administration is weighing further restrictions on China in its final days, including adding Alibaba and Tencent to a list of companies with ties to the Chinese military, a designation that would prevent Americans from investing in those businesses. — Ana SwansonDefining gig workers as contractors. The Labor Department on Wednesday released the final version of a rule that could classify millions of workers in industries like construction, cleaning and the gig economy as contractors rather than employees, another step toward endorsing the business practices of companies like Uber and Lyft. — Noam ScheiberTrimming social media’s legal shield. The Trump administration recently filed a petition asking the Federal Communications Commission to narrow its interpretation of a powerful legal shield for social media platforms like Facebook and YouTube. If the commission doesn’t act before Inauguration Day, the matter will land in the desk of whomever Mr. Biden picks to lead the agency. — David McCabeTaking the tech giants to court. The Federal Trade Commission filed an antitrust suit against Facebook in December, two months after the Justice Department sued Google. Mr. Biden’s appointees will have to decide how best to move forward with the cases. — David McCabeAdding new cryptocurrency disclosure requirements. The Treasury Department late last month proposed new reporting requirements that it said were intended to prevent money laundering for certain cryptocurrency transactions. It gave only 15 days — over the holidays — for public comment. Lawmakers and digital currency enthusiasts wrote to the Treasury secretary, Steven Mnuchin, to protest and won a short extension. But opponents of the proposed rule say the process and substance are flawed, arguing that the requirement would hinder innovation, and are likely to challenge it in court. — Ephrat LivniLimiting banks on social and environmental issues. The Office of the Comptroller of the Currency is rushing a proposed rule that would ban banks from not lending to certain kinds of businesses, like those in the fossil fuel industry, on environmental or social grounds. The regulator unveiled the proposal on Nov. 20 and limited the time it would accept comments to six weeks despite the interruptions of the holidays. — Emily FlitterOverhauling rules on banks and underserved communities. The Office of the Comptroller of the Currency is also proposing new guidelines on how banks can measure their activities to get credit for fulfilling their obligations under the Community Reinvestment Act, an anti-redlining law that forces them to do business in poor and minority communities. The agency rewrote some of the rules in May, but other regulators — the Federal Reserve and the Federal Deposit Insurance Corporation — did not sign on. — Emily FlitterInsuring “hot money” deposits. On Dec. 15, the F.D.I.C. expanded the eligibility of brokered deposits for insurance coverage. These deposits are infusions of cash into a bank in exchange for a high interest rate, but are known as “hot money” because the clients can move the deposits from bank to bank for higher returns. Critics say the change could put the insurance fund at risk. F.D.I.C. officials said the new rule was needed to “modernize” the brokered deposits system. — Emily FlitterNarrowing regulatory authority over airlines. The Department of Transportation in December authorized a rule, sought by airlines and travel agents, that limits the department’s authority over the industry by defining what constitutes an unfair and deceptive practice. Consumer groups widely opposed the rule. Airlines argued that the rule would limit regulatory overreach. And the department said the definitions it used were in line with its past practice. — Niraj ChokshiRolling back a light bulb rule. The Department of Energy has moved to block a rule that would phase out incandescent light bulbs, which people and businesses have increasingly been replacing with much more efficient LED and compact fluorescent bulbs. The energy secretary, Dan Brouillette, a former auto industry lobbyist, said in December that the Trump administration did not want to limit consumer choice. The rule had been slated to go into effect on Jan. 1 and was required by a law passed in 2007. — Ivan PennAdvertisementContinue reading the main story More

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    The Year the Fed Changed Forever

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesThe Stimulus DealThe Latest Vaccine InformationF.A.Q.Jerome H. Powell, the Federal Reserve chair, has faced some of the most trying months in the central bank’s history.Credit…Nate Palmer for The New York TimesSkip to contentSkip to site indexThe Year the Fed Changed ForeverJerome H. Powell’s central bank slashed rates, bought bonds in huge sums and rolled out never-before-tried loan programs that shifted its identity. The backlash is already beginning.Jerome H. Powell, the Federal Reserve chair, has faced some of the most trying months in the central bank’s history.Credit…Nate Palmer for The New York TimesSupported byContinue reading the main storyDec. 23, 2020Updated 4:04 p.m. ETWASHINGTON — As Jerome H. Powell, the Federal Reserve chair, rang in 2020 in Florida, where he was celebrating his son’s wedding, his work life seemed to be entering a period of relative calm. President Trump’s public attacks on the central bank had eased up after 18 months of steady criticism, and the trade war with China seemed to be cooling, brightening the outlook for markets and the economy.Yet the earliest signs of a new — and far more dangerous — crisis were surfacing some 8,000 miles away. The novel coronavirus had been detected in Wuhan, China. Mr. Powell and his colleagues were about to face some of the most trying months in Fed history.By mid-March, as markets were crashing, the Fed had cut interest rates to near zero to protect the economy. By March 23, to avert a full-blown financial crisis, the Fed had rolled out nearly its entire 2008 menu of emergency loan programs, while teaming up with the Treasury Department to announce programs that had never been tried — including plans to support lending to small and medium-size businesses and buy corporate debt. In early April, it tacked on a plan to get credit flowing to states.“We crossed a lot of red lines that had not been crossed before,” Mr. Powell said at an event in May.The Fed’s job in normal times is to help the economy operate at an even keel — to keep prices stable and jobs plentiful. Its sweeping pandemic response pushed its powers into new territory. The central bank restored calm to markets and helped keep credit available to consumers and businesses. It also led Republicans to try to limit the vast tool set of the politically independent and unelected institution. The Fed’s emergency loan programs became a sticking point in the negotiations over the government spending package Congress approved this week.But even amid the backlash, the Fed’s work in salvaging a pandemic-stricken economy remains unfinished, with millions of people out of jobs and businesses suffering.The Fed is likely to keep rates at rock bottom for years, guided by a new approach to setting monetary policy adopted this summer that aims for slightly higher inflation and tests how low unemployment can fall.And the Fed’s extraordinary actions in 2020 weren’t aimed only at keeping credit flowing. Mr. Powell and other top Fed officials pushed for more government spending to help businesses and households, an uncharacteristically bold stance for an institution that tries mightily to avoid politics. As the Fed took a more expansive view of its mission, it weighed in on climate change, racial equity and other issues its leaders had typically avoided.“We’ve often relegated racial equity, inequality, climate change to simply social issues,” Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said in an interview. “That’s a mistake. They are economic issues.”In Washington, reactions to the Fed’s bigger role have been swift and divided. Democrats want the Fed to do more, portraying the attention to climate-related financial risks as a welcome step but just a beginning. They have also pushed the Fed to use its emergency lending powers to funnel cheap credit to state and local governments and small businesses.The Fed’s sweeping pandemic response pushed its powers into new territory.Credit…Ting Shen for The New York TimesRepublicans have worked to restrict the Fed to ensure that the role it has played in this pandemic does not outlast the crisis.Patrick J. Toomey, a Republican senator from Pennsylvania, spearheaded the effort to insert language into the relief package that could have forced future Fed emergency lending programs to stick to soothing Wall Street instead of trying to also directly support Main Street, as the Fed has done in the current downturn.Republicans worry that the Fed could use its power to support partisan goals — by invoking its regulatory power over banks, for instance, to treat oil and gas companies as financial risks, or by propping up financially troubled municipal governments.“Fiscal and social policy is the rightful realm of the people who are accountable to the American people, and that’s us, that’s Congress,” Mr. Toomey, who could be the next banking committee chairman and thus one of Mr. Powell’s most important overseers, said last week from the Senate floor.Mr. Toomey’s proposal was watered down during congressional negotiations, clearing the way for a broader relief deal: Congress barred the central bank from re-establishing the exact facilities used in 2020, but it did not cut off its power to help states and companies in the future.The Coronavirus Outbreak More

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    Buried in Covid Relief Bill: Billions to Soothe the Richest

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesThe Stimulus DealThe Latest Vaccine InformationF.A.Q.AdvertisementContinue reading the main storySupported byContinue reading the main storyBuried in Pandemic Aid Bill: Billions to Soothe the RichestThe voluminous coronavirus relief and spending bill that blasted through Congress on Monday includes provisions — good, bad and just plain strange — that few lawmakers got to read.Senator Joe Manchin III, Democrat of West Virginia, at the Capitol last week. He said leadership intentionally waited until the last minute to unveil final proposals to the spending bill.Credit…Anna Moneymaker for The New York TimesLuke Broadwater, Jesse Drucker and Dec. 22, 2020WASHINGTON — Tucked away in the 5,593-page spending bill that Congress rushed through on Monday night is a provision that some tax experts call a $200 billion giveaway to the rich.It involves the tens of thousands of businesses that received loans from the federal government this spring with the promise that the loans would be forgiven, tax free, if they agreed to keep employees on the payroll through the coronavirus pandemic.But for some businesses and their high-paid accountants, that was not enough. They went to Congress with another request: Not only should the forgiven loans not to be taxed as income, but the expenditures used with those loans should be tax deductible.“High-income business owners have had tax benefits and unprecedented government grants showered down upon then. And the scale is massive,” said Adam Looney, a fellow at the Brookings Institution and a former Treasury Department tax official in the Obama administration, who estimated that $120 billion of the $200 billion would flow to the top 1 percent of Americans.The new provision allows for a classic double dip into the Payroll Protection Program, as businesses get free money from the government, then get to deduct that largess from their taxes.And it is one of hundreds included in a huge spending package and a coronavirus stimulus bill that is supposed to help businesses and families struggling during the pandemic but, critics say, swerved far afield. President Trump on Tuesday night blasted it as a disgrace and demanded revisions.“Congress found plenty of money for foreign countries, lobbyists and special interests, while sending the bare minimum to the American people who need it,” he said in a video posted on Twitter that stopped just short of a veto threat.The measure includes serious policy changes beyond the much-needed $900 billion in coronavirus relief, like a simplification of federal financial aid forms, measures to address climate change and a provision to stop “surprise billing” from hospitals when patients unwittingly receive care from physicians out of their insurance networks.But there is also much grumbling over other provisions that lawmakers had not fully reviewed, and a process that left most of them and the public in the dark until after the bill was passed. The anger was bipartisan.“Members of Congress have not read this bill. It’s over 5000 pages, arrived at 2pm today, and we are told to expect a vote on it in 2 hours,” Representative Alexandria Ocasio-Cortez, Democrat of New York, tweeted on Monday. “This isn’t governance. It’s hostage-taking.”Senator Ted Cruz, Republican of Texas, agreed — the two do not agree on much.“It’s ABSURD to have a $2.5 trillion spending bill negotiated in secret and then—hours later—demand an up-or-down vote on a bill nobody has had time to read,” he tweeted on Monday.The items jammed into the bill are varied and at times bewildering. The bill would make it a felony to offer illegal streaming services. One provision requires the C.I.A. to report back to Congress on the activities of Eastern European oligarchs tied to President Vladimir V. Putin of Russia. The federal government would be required to set up a program aimed at eradicating the murder hornet and to crack down on online sales of e-cigarettes to minors.It authorizes 93 acres of federal lands to be used for the construction of the Teddy Roosevelt Presidential Library in North Dakota and creates an independent commission to oversee horse racing, a priority of Senator Mitch McConnell, Republican of Kentucky and the majority leader.Mr. McConnell inserted that item to get around the objections of a Democratic senator who wanted it amended, but he received agreement from other congressional leaders.Alexander M. Waldrop, the chief executive of the National Thoroughbred Racing Association, said on Tuesday that Mr. McConnell had “said many times he feared for the future of horse racing and the impact on the industry, which of course is critical to Kentucky.”The Coronavirus Outbreak More

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    What Is 13-3? Why a Debate Over the Fed Is Holding Up Stimulus Talks

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    AdvertisementContinue reading the main storySupported byContinue reading the main storyWhat Is 13-3? Why a Debate Over the Fed Is Holding Up Stimulus TalksThe Fed’s emergency lending authorities are a key part of its job. Republicans want to curb them. Democrats are pushing back.Senate Republicans are trying to make sure that emergency programs backed by the Federal Reserve cannot be restarted after they expire on December 31.Credit…Anna Moneymaker for The New York TimesDec. 18, 2020Updated 7:40 p.m. ETAs markets melted down in March, the Federal Reserve unveiled novel programs meant to keep credit flowing to states, medium-sized businesses and big companies — and Congress handed Treasury Secretary Steven Mnuchin $454 billion to back up the effort.Nine months later, Senate Republicans are trying to make sure that those same programs cannot be restarted after Mr. Mnuchin lets them end on Dec. 31. Beyond preventing their reincarnation under the Biden administration, Republicans are seeking to insert language into a pandemic stimulus package that would limit the Fed’s powers going forward, potentially keeping it from lending to businesses and municipalities in future crises.The last-minute move has drawn Democratic ire, and it has imperiled the fate of relief legislation that economists say is sorely needed as households and businesses stare down a dark pandemic winter. Here is a rundown of how the Fed’s lending powers work and how Republicans are seeking to change them.The Fed can keep credit flowing when conditions are really bad.The Fed’s main and best-known job is setting interest rates to guide the economy. But the central bank was set up in 1913 in large part to stave off bank problems and financial panics — when people become nervous about the future and rush to withdraw their money from bank accounts and sell off stocks, bonds and other investments. Congress dramatically expanded the Fed’s powers to fight panics during the Great Depression, adding Section 13-3 to the Federal Reserve Act.The section allows the Fed to act as a lender of last resort during “unusual and exigent” circumstances — in short, when markets are not working normally because investors are exceptionally worried. The central bank used those powers extensively during the 2008 crisis, including to support politically unpopular bailouts of financial firms. Congress subsequently amended the Fed’s powers so that it would need Treasury’s blessing to roll out new emergency loan programs or to materially change existing ones.The programs provide confidence as much as credit.During the 2008 crisis, the Fed served primarily as a true lender of last resort — it mostly backed up the various financial markets by offering to step in if conditions got really bad. The 2020 emergency loan programs have been way more expansive. Last time, the Fed concentrated on parts of Wall Street most Americans know little about like the commercial paper market and primary dealers. This time, it reintroduced those measures, but it also unveiled new programs that have kept credit available in virtually every part of the economy. It has offered to buy municipal bonds, supported bank lending to small and medium-sized businesses, and bought up corporate debt.The sweeping package was a response to a real problem: Many markets were crashing in March. And the new programs generally worked. While the terms weren’t super generous and relatively few companies and state and local borrowers have taken advantage of these new programs, their existence gave investors confidence that the central bank would prevent a financial collapse.But things started getting messy in mid-November.Most lawmakers agreed that the Fed and Treasury had done a good job reopening credit markets and protecting the economy. But Senator Patrick J. Toomey, a Pennsylvania Republican, started to ask questions this summer about when the programs would end. He said he was worried that the Fed might overstep its boundaries and replace private lenders.After the election, other Republicans joined Mr. Toomey’s push to end the programs. Mr. Mnuchin announced on Nov. 19 that he believed Congress had intended for the five programs backed by the $454 billion Congress authorized to stop lending and buying bonds on Dec. 31. He closed them — while leaving a handful of mostly older programs open — and asked the Fed to return the money he had lent to the central bank.Business & EconomyLatest UpdatesUpdated Dec. 18, 2020, 12:25 p.m. ETLee Raymond, a former Exxon chief, will step down from JPMorgan Chase’s board.U.S. adds chip maker S.M.I.C. and drone maker DJI to its entity list.Volkswagen says semiconductor shortages will cause production delays.The Fed issued a statement saying it was dissatisfied with his choice, but agreed to give the money back.Democrats criticized the move as designed to limit the incoming Biden administration’s options. They began to discuss whether they could reclaim the funds and restart the programs once Mr. Biden took office and his Treasury secretary was confirmed, since Mr. Mnuchin’s decision to close them and claw back the funds rested on dubious legal ground.The new Republican move would cut off that option. Legislative language circulating early Friday suggested that it would prevent “any program or facility that is similar to any program or facility established” using the 2020 appropriation. While that would still allow the Fed to provide liquidity to Wall Street during a crisis, it could seriously limit the central bank’s freedom to lend to businesses, states and localities well into the future.In a statement, Senator Elizabeth Warren, Democrat of Massachusetts, called it an attempt to “to sabotage President Biden and our nation’s economy.”Mr. Toomey has defended his proposal as an effort to protect the Fed from politicization. For example, he said Democrats might try to make the Fed’s programs much more generous to states and local governments.The Treasury secretary would need to have the Fed’s approval to improve the terms to help favored borrowers. But the central bank might not readily agree, as it has generally approached its powers cautiously to avoid attracting political scrutiny and to maintain its status as a nonpartisan institution.Fed officials have avoided weighing in on the congressional showdown underway.“I won’t have anything to say on that beyond what we have already said — that Secretary Mnuchin, as Treasury secretary, would like for the programs to end as of Dec. 31” and that the Fed will give back the money as asked, Richard H. Clarida, the vice chairman of the Fed, said Friday on CNBC.More generally, he added that “we do believe that the 13-3 facilities” have been “very valuable.”Emily Cochrane More

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    Fed Closes Out Wild Year as All Eyes Focus on Bond-Buying Program

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    AdvertisementContinue reading the main storySupported byContinue reading the main storyFed Closes Out Wild Year as All Eyes Focus on Bond-Buying ProgramThe central bank’s meeting will wrap up Wednesday, as the Fed stares down a bifurcated economic outlook.Jerome H. Powell, the Federal Reserve chair, will likely need to walk a narrow line as he tries to explain how the Fed will proceed.Credit…Al Drago for The New York TimesDec. 16, 2020, 5:00 a.m. ETWASHINGTON — The Federal Reserve is wrapping up what might be the most activist year in its history with a final scheduled policy meeting this week, one at which it is expected to leave interest rates at rock bottom and to signal continued willingness to help the economy through the challenging pandemic era.Any policy changes out of this week’s gathering are expected to concentrate on the Fed’s large-scale bond-buying program, which it began in March. For a time, it pledged to buy as much government-backed debt as needed to help keep markets functioning before it settled into a steady pace of purchases. But the fate of that program is just one of several momentous questions that lie ahead.In the coming months, the policy-setting Federal Open Market Committee — a mix of governors in Washington and regional Fed presidents — will have to decide whether to ramp up or dial back bond purchases from the current pace of $120 billion per month, what specifically to buy, and how to communicate when they will stop.Fed governors, who oversee bank regulation, will have to consider in 2021 whether to extend tweaks put in place because of the pandemic. And Jerome H. Powell, the Fed chair, and his new, Democratic counterpart at the Treasury Department will have to decide whether to restart emergency loan programs that outgoing Treasury Secretary Steven Mnuchin is ending on his way out the door. Democrats have urged their renewal, and Republicans have warned against it.All of those decisions will be set against a fragmented economic backdrop: The recovery is sputtering in the near-term as the coronavirus spreads and keeps holiday travelers and shoppers at home, but the economy is expected to rebound sharply as a vaccine becomes widely available. The Fed’s monetary policies work with a lag, and the stark divide across time will make calibrating next steps all the more challenging.Mr. Powell will give his assessment of the economic outlook and answer reporter questions at a news conference following the 2 p.m. release of the Fed’s December policy statement. Officials will also release their quarterly economic estimates, which will offer a sense of what path they expect the unemployment rate, inflation and interest rates to follow over the coming years.Mr. Powell will likely need to walk a narrow line as he tries to explain how the Fed will proceed. Many investors are looking for more economic help in the near-term, and anything perceived as complacency could rattle them. Yet his colleagues, in recent speeches, have been divided over how much more the Fed needs to do now, which could make it difficult for the chair — who speaks, in part, as a representative for the Federal Open Market Committee — to present a conclusive message.The Fed has enacted a sweeping series of responses to cushion American workers and businesses against the pandemic’s economic fallout. It slashed interest rates to near-zero in March, rolled out its bond-buying campaign to soothe troubled markets, and unveiled a spate of programs to keep credit flowing to states and cities, small and medium-sized businesses and corporations.Those measures have largely achieved their goals. The central bank averted a financial system meltdown, borrowing costs have held at low levels across many credit markets, and interest rate-sensitive sectors like housing roared back after lockdowns. Yet the next stage could be harder: Millions of people remain out of work nine months into the crisis, many businesses are teetering on the brink, and while a vaccine is in sight, widespread immunity might still be months away.The Fed is also low on new tricks, but not entirely out of them. Officials could, as early as this week’s meeting, change the way they are buying bonds in order to have more of an economic impact.Policymakers are mulling whether to shift toward longer-term debt and away from short-term notes. That wonky maneuver may seem technical, but it could have the effect of holding down borrowing costs on things like mortgages and business loans and, in doing so, set the stage for stronger growth.“The economy is far more sensitive to longer-term rates,” said Priya Misra, global head of rates strategy at TD Securities. She pointed out that without Fed action, longer-term rates will rise as a deluge of Treasury securities enter the market to fund the government’s pandemic spending.But it is not a slam-dunk that such a change will happen at this meeting. Regional Fed presidents have expressed lukewarm appetite for changing the so-called quantitative easing, or Q.E., programs now.“If we need to offer more support or we need to prop up the support that we’ve offered, we can use Q.E. for that, including changing the duration,” Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said in a recent question-and-answer session. “But if you look at financial markets right now, I see no indication that they are misunderstanding where we’re headed and that we need to somehow do something different to get financial markets where we need them to be.”Business & EconomyLatest UpdatesUpdated Dec. 16, 2020, 6:52 a.m. ETStocks are rising as pandemic relief talks and vaccine developments advance.Advocacy groups are rushing to get aid to renters before a federal cutoff date.Companies crucial to vaccine distribution are seeing a flurry of investments.Conditions are evolving quickly. Since the Fed entered its premeeting quiet period, during which officials do not give speeches, virus cases have continued to climb, several real-time data points have pointed to economic weakening, and rates on the closely-watched 10-year Treasury bond have crept higher, making many types of credit a bit more expensive. At the same time, vaccines have been approved and early disbursement has begun.Even if the Fed leaves the contours of its bond-purchase program unchanged for now, economists think the central bank might update the way it talks about its plans for the future. The central bank has indicated that it might offer guidance on how long it plans to buy assets to keep markets performing smoothly and bolster the economy “fairly soon.” That is likely to entail tying its bond-buying plans to qualitative — rather than numbers-based — economic goals.J.P. Morgan analysts think officials might link the buying to the course of the virus by saying that they will “continue purchases for as long as the public health crisis weighs on economic activity,” Michael Feroli, the bank’s chief U.S. economist, wrote in a research note.Economists at Goldman Sachs expect the Fed to pledge that purchases will continue “until the labor market is on track to reach maximum employment and inflation is on track to reach 2 percent.”That wide gap in expectations, even among top Fed-watching firms, underlines why this could be a fraught meeting for Mr. Powell. Disappointing investor expectations could roil markets, but it is not entirely clear what market participants expect.The Fed’s November meeting minutes also raised the possibility that the Fed might take a look at the types of bonds it is buying. The Fed is currently buying about $80 billion worth of Treasury debt and $40 billion in mortgage-backed securities — or M.B.S. — per month. But the minutes show that a few officials worried that “maintaining the current pace of agency M.B.S. purchases could contribute to potential valuation pressures in housing markets.”Whatever tweaks do come are likely to cut in the direction of more overall support for the economy. There are still about 10 million fewer jobs than in February, real-time indicators of consumer spending are coming in soft as virus cases surge, and jobless claims are rocketing higher once again, dimming the near-term outlook.“As economic momentum slows and Covid cases surge, we look for monetary policymakers to fortify the bridge that supports the economy until vaccinations become widely available,” Kathy Bostjancic, chief U.S. financial economist at Oxford Economics, wrote in a note previewing the meeting.The Fed will release a new set of quarterly economic projections at this meeting, and they are expected to reflect a more dire outlook in the near-term but also a stronger bounceback later on. But even with the vaccines coming, wild cards remain — including how much congressional support the economy will get in the near-term.Lawmakers are trying to hash out a compromise deal that would send households money and offer companies support, but Democrats and Republicans have remained divided over issues including liability protection and aid for state and local governments.The lack of a deal so far is one reason that Goldman Sachs economists expect the shift toward buying longer-dated debt at this meeting.“Although no one is under any illusions that a maturity extension is an adequate substitute for a fiscal package in offsetting the impact of the virus resurgence on businesses and workers, it might do some good,” they wrote in a research note. “At the very least, Fed officials might be weary of disappointing market expectations for an easing action in difficult times.”AdvertisementContinue reading the main story More