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Powell and Mnuchin Split on Recovery Outlook; Fed Chief Not Sweating Side Effects of Balance Sheet Expansion
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Good day. Steven Mnuchin and Jerome Powell offered contrasting visions of the economic outlook in an online congressional hearing yesterday, with the Treasury Secretary favoring a wait-and-see approach to more federal aid and the Fed leader suggesting more would be needed. Mr. Powell also said he isn't concerned about the expansion of the Fed's balance sheet stoking inflation. Eric Rosengren of the Boston Fed, meanwhile, became the latest central bank official to say that for the economy to truly recover, the public must be confident they can go out in public without negative effect.
Now on to today’s news and analysis.
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Powell, Mnuchin Outline Contrasting Perils Facing Economy
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‘We are fully prepared to take losses in certain scenarios,’ Treasury Secretary Steven Mnuchin said during his testimony. PHOTO: JIM LO SCALZO/EPA/SHUTTERSTOCK
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The positions of Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin reflected differing views on the prospects for a swift economic rebound from the coronavirus pandemic. Mr. Mnuchin reflected the Trump administration’s belief that the biggest danger to the economy is waiting too long to restart activity. Mr. Powell challenged the notion of a trade-off between economic growth and public health and again suggested additional spending by Washington could be needed to prevent long-term damage from high unemployment and waves of bankruptcies.
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Fed’s Rosengren: Premature Reopening of Economy Carries Risk
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Boston Fed President Eric Rosengren said he expects unemployment will remain at double-digit levels at the end of the year, adding that “now is the time for both monetary and fiscal policy to act boldly to minimize the economic pain from the pandemic."
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Derby's Take: Powell Sees Little Reason to Fret Over Fed Balance-Sheet Growth
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“I would say it doesn’t have implications for inflation,” Fed Chairman Jerome Powell said of the growth of the central bank's balance sheet during a Senate Banking Committee hearing Tuesday. “It isn’t something that raises financial stability or inflation concerns today.” Read more.
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Key Developments Around the World
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Behind Bond Market’s Stall, Investors See Hard Times Ahead
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Yields on U.S. government bonds have stalled near all-time lows, a sign that investors expect a difficult recovery and years of aggressive monetary stimulus. For much of the past month and a half, the yield on the benchmark 10-year U.S. Treasury note has hovered a shade above its all-time low of around 0.5% set in March. The low level and its stability suggest that investors are unusually confident in their dreary outlook.
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Bank of Thailand Cuts Key Rate to Record Low
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The Thai central bank cut its one-day repurchase rate by 25 basis points to 0.5%, as expected by economists. Three of seven rate-setters voted to hold it steady. Official data on this week showed first-quarter gross domestic product shrank 1.8% from a year earlier.
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South Korea Sets Up Vehicle to Buy High-Risk Corporate Debt
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The Bank of Korea and the country's Ministry of Economy and Finance said they will set up a 10 trillion won ($8.16 billion) special-purpose vehicle to buy corporate bonds and commercial paper downgraded to non-investment grades because of the coronavirus pandemic. The BOK and the state-run Korean Development Bank will fund the vehicle, which will run for six months and may double its funds if needed. (Dow Jones Newswires)
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Shutdowns Devastating Poorest Nations, World Bank Chief Says
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The World Bank estimates 60 million people world-wide are likely to fall into extreme poverty—subsisting on less than $1.90 a day—this year, while hundreds of millions more could lose their jobs, a backslide that could have health implications beyond the coronavirus.
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Financial Regulation Roundup
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Top U.S. Banking Regulator Is Expected to Step Down
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Joseph Otting, who has served as comptroller of the currency since November 2017, is expected to step down this week after completing an overhaul of rules governing billions of dollars of lending in low-income neighborhoods, according to people familiar with the matter.
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Santander to Pay U.S. States $550 Million to Settle Allegations
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The settlement with nearly three dozen states resolves charges that one of the largest subprime auto lenders in the U.S. made loans borrowers couldn’t afford to repay, charged excessive fees and failed to monitor dealership loan practices.
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At Least 30 Public Companies Say They Will Keep PPP Loans
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The companies had received around $110 million in all from the Paycheck Protection Program and could face audits of their applications. The companies, whose market caps range from about $4.5 million to $560 million, say they believe they are eligible.
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Nasdaq Moves to Delist China’s Luckin Coffee
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The Nasdaq Stock Market has determined that Luckin Coffee Inc. should be delisted, after the Chinese coffee chain, an upstart rival to Starbucks Corp. in China, disclosed last month that as much as $310 million of its sales last year were fabricated by some employees.
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Time N/A: Bank of Thailand releases policy statement
9:30 a.m.: Bank of England’s Bailey, Broadbent, Cunliffe and Haskel speak on economic impact of coronavirus in Treasury Committee hearing
10 a.m.: Atlanta Fed’s Bostic speaks on Fed’s response to Covid-19 in webinar
12 p.m.: St. Louis Fed’s Bullard speaks online on Covid-19 and the economy
2 p.m.: U.S. Federal Reserve releases April 28-29 meeting minutes
2 p.m.: Bank of Canada’s Lane speaks via videoconference on policies for the global shutdown
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Time N/A: Central Bank of the Republic of Turkey releases policy statement
Time N/A: Bangko Sentral ng Pilipinas releases policy statement
Time N/A: South African Reserve Bank releases policy statement
3:35 a.m.: European Central Bank’s Panetta participates in online conference
10 a.m.: New York Fed’s Williams speaks during cyber event
1 p.m.: Fed’s Clarida speaks on U.S. economic outlook and monetary policy during online discussion hosted by New York Association for Business Economics
2:30 p.m.: Fed’s Powell gives opening remarks and Fed’s Brainard moderates panel on Covid-19 during online Fed Listens event
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For U.S. Home Builders, a Better Kind of Recession
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While for many businesses the coronavirus crisis is the biggest economic shock in living memory, for home builders it still doesn’t come close to what they experienced after the housing bust and financial crisis, Justin Lahart writes at The Wall Street Journal.
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Gross sales of U.S. corn and pork were up around eight times in the 10 weeks ended May 7 from the same period in 2017, before the trade war.
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German economic expectations rose sharply in May, increasing for the second month in a row, the ZEW economic research institute said Tuesday, noting its expectations measure jumped to 51.0 from 28.2 in April. (Dow Jones Newswires)
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Passenger-car registrations in the EU fell 76% on the year in April to 270,682 vehicles as coronavirus-related restrictions led most showrooms across the region to close, the European Automobile Manufacturers Association said Tuesday. (DJN)
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U.S. housing starts occurred at an 891,000 seasonally adjusted annual rate in April, a 30% drop from March and the slowest pace of new home construction since February 2015, the U.S. Commerce Department said. (DJN)
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The unemployment rate in the U.S. travel sector has reached 51%, according to data compiled by Tourism Economics for the U.S. Travel Association. (DJN)
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75% of Americans plan to support local businesses as much as possible once governments lift restrictions imposed to slow the spread of the coronavirus, a survey by e-commerce company Groupon found. (DJN)
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Two restructuring proposals for Puerto Rico are "essentially dead" because of the coronavirus pandemic's economic impact, a court-appointed committee of the U.S. territory's creditors said. (DJN)
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This newsletter is compiled by James Christie in San Francisco and Ed Ballard in London.
Send us your tips, suggestions and feedback. Write to:
Jon Hilsenrath, Michael Derby, Nell Henderson, Nick Timiraos, Jason Douglas, Paul Hannon, Harriet Torry, Kate Davidson, David Harrison, Kim Mackrael, Tom Fairless, Megumi Fujikawa, Michael Maloney, Paul Kiernan, James Glynn
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