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GOP Stimulus Plan Would Reduce Funding for Fed Programs; Research Stresses Importance of Fiscal Response to Pandemic
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Good day. Senate Republicans trimmed the cost of their new stimulus proposal by tapping uncommitted money tied to the Federal Reserve’s emergency lending programs. Meanwhile, new research suggests monetary policy isn’t well suited to support an economy when parts of it are shut down for health policy reasons, and in such a situation government spending is called for, Michael S. Derby reports. And we round up market commentary ahead of the European Central Bank's meeting tomorrow.
Now on to today’s news and analysis.
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Senate Republicans Roll Out ‘Skinny’ Stimulus Bill
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Republican and Democratic lawmakers on Capitol Hill have been at an impasse for many weeks this summer over how large a new stimulus is needed to deal with the coronavirus pandemic and effects.
PHOTO: J. SCOTT APPLEWHITE/ASSOCIATED PRESS
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Republicans proposed a new, smaller package of coronavirus aid Tuesday aimed at unifying the party and bolstering it politically, as talks with Democrats remained at a standstill and both parties blame the other for the lack of progress over the summer. The Senate GOP proposal would reduce Treasury funding for Fed lending programs and prevent the Fed from making any transactions under these programs after Jan. 18, 2021.
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Derby's Take: Pandemic Best Addressed Via Fiscal Actions, Says Economist
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Government spending policies are likely to provide the clearest path toward recovery from the coronavirus pandemic, according to Michael Woodford of Columbia University, writing in a paper published by the National Bureau of Economic Research. Read More.
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U.S. Government-Bond Yields Fall as Investors Seek Safety From Tech-Stock Slide
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The yield on the benchmark 10-year Treasury note closed at 0.682%, down from 0.720% Friday—its largest single-session decline since Aug. 4. The yield on the 30-year-bond also slid, settling at 1.421%, from 1.468% last week. The drop in yields began overnight alongside futures for the tech-heavy Nasdaq Composite Index. Yields continued to fall early Tuesday before paring some of their declines in the afternoon.
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Remote Schools’ Hidden Cost: Parents Quit Work to Teach
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According to Brevan Howard Asset Management, about 4.3 million U.S. workers could find themselves staying home unless they find other child-care arrangements. If they are counted among the unemployed, it would boost the unemployment rate by 2.6 percentage points.
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Key Developments Around the World
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Quick Hits: ECB to Focus on Negative Inflation, Euro Strength
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A roundup of analysis from Dow Jones Newswires ahead of the European Central Bank’s policy meeting on Thursday.
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Johnson Wants Scope to Boost Intervention, Rattling Brexit Talks
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Trade negotiations that will define the future relationship between the U.K. and the EU from next year have stalled, in large part because Boris Johnson’s government wants the freedom to ignore EU rules limiting state subsidies of private companies.
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South Africa’s Economy Shrinks 51% as Lockdowns Hurt Businesses
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South Africa’s economy shrank by an annualized 51% in the second quarter, its worst quarterly decline in at least a century and one of the steepest contractions recorded by any major economy during the coronavirus pandemic.
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Oil Prices Tumble on Faltering Recovery in Demand
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Oil prices slumped to their lowest level in more than two months Tuesday, under pressure from a stalling recovery in demand and planned production expansions by OPEC that threaten to add to an existing glut of crude.
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Financial Regulation Roundup
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JPMorgan Investigating Employees, Clients Over Stimulus Programs
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JPMorgan Chase & Co. has found evidence of employees and customers misusing the government’s flood of stimulus funds this spring and is cooperating with authorities, the bank’s leaders told employees Tuesday.
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U.K. Fraud Office Charges Former Executives of G4S Subsidiary
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The U.K.’s Serious Fraud Office on Tuesday filed fraud charges against three former executives of a subsidiary of security-services company G4S PLC., alleging they made false representations to the U.K.’s Ministry of Justice in a multiyear scheme to defraud the agency.
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U.S. Seeks to Reshape Lebanese Government With New Sanctions
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The Trump administration on Tuesday blacklisted two former Lebanese government ministers it says have aided Iran-backed Hezbollah and are part of systemic corruption the U.S. says is contributing to the country’s economic deterioration.
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Time N/A: National Bank of Poland releases policy statement
10 a.m.: Bank of Canada releases interest-rate decision
10 a.m.: U.S. Labor Department releases July Job Openings and Labor Turnover Survey
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7:45 a.m.: European Central Bank releases policy statement
8:30 a.m.: U.S. Labor Department releases August PPI
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Economist Says Now Comes the Hard Part of Lowering Jobless Rate
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What appears to be a relatively swift rebound in the U.S. job market, in which the unemployment rate fell from an April peak of 14.7% to 8.4% as of August, has merely brought the economy to its next hurdle of addressing structural unemployment, writes economist Steve Englander of Standard Chartered. "Given all the pessimism, the employment rebound thus far does resemble a V," he says in a note to clients. "However, we suspect that this will not be the case for long, unless coronavirus concerns abate quickly. Barring meaningful medical advances, the likelihood is that the slope of the V flattens significantly in coming months." From this point forward it will become harder to shrink the jobless rate, he adds: "We suspect there will be at least 5 ½ million additional workers who find themselves struggling in labor markets, based on the number of workers
who have been unemployed 15-26 weeks and the risk of layoffs as [Paycheck Protection Program] support ends."
—Michael S. Derby
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U.S. consumer credit rose at a seasonally adjusted annual rate of 3.56% in July, the Federal Reserve said Tuesday, the second straight month of increases following three months of sharp declines during the height of the pandemic. (Dow Jones Newswires)
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An index measuring U.S. employment trends rose in August for the fourth consecutive month as job growth retained upward momentum, according to the Conference Board, whose Employment Trends Index rose to 52.55 last month from an upwardly revised figure of 51.37 in July. (DJN)
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Retail passenger-car sales in China increased by 8.9% in August from a year earlier to 1.7 million vehicles, the China Passenger Car Association said Tuesday, marking the strongest rate of growth since May 2018.
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The eurozone economy’s 11.8% contraction during the three months through June was shallower than the 12.1% contraction initially estimated, but it remained the deepest since records began in 1995, according to the EU’s statistics agency. (DJN)
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The French economy is expected to shrink 9% this year, according to statistics office Insee, which is maintaining its July forecast. (DJN)
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German exports rose in July for the third consecutive month, increasing 4.7% from June in adjusted terms, statistics office Destatis said. Economists had forecast a 3.3% increase, according to a poll by The Wall Street Journal. (DJN)
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Malaysia's central bank is likely to cut its policy rate by another 25bps to 1.50% on Thursday, according to nine of 17 economists polled by WSJ. (DJN)
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Italian retail sales fell 2.2% in July from June after two months of record increases, a sign the strong recovery in consumption driven by the reopening of the economy is levelling off, data from statistics agency Istat showed Tuesday. (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
Follow us on Twitter:
@WSJCentralBanks, @NHendersonWSJ, @michaelsderby, @NickTimiraos, @PaulHannon29, @wsj_douglasj, @HarrietTorry, @KateDavidson, @d_harrison, @kimmackrael, @TomFairless, @megumifujikawa, @mikemaloneyny, @pkwsj, @JamesGlynnWSJ
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