The Federal Reserve said on Wednesday that it would take whatever steps it could to insulate the economy as coronavirus lockdowns take a severe toll on economic growth, making clear that the central bank will use all its tools to help hasten a recovery.
The Fed, which had already slashed interest rates to near zero at two emergency meetings, left its benchmark rate unchanged and signaled it had no plans to raise rates anytime soon.
“The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term,” the Fed said in its official statement. The central bank said it expects to maintain its current target interest rate, which is set in a range between zero and 25 basis points “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”
Fed officials gathered virtually this week for their first regularly scheduled meeting since the crisis took hold in the United States, Jeanna Smialek reports.
The central bank has already taken a series of aggressive steps to try to backstop the economy, including buying enormous quantities of government and mortgage-backed debt. The Fed has also unveiled a spate of emergency programs that either buy debt or loan money into critical sectors.
Congress handed the Treasury Department $454 billion to support the Fed’s facilities, which need to be protected against credit losses. Officials have used that backing to push the Fed’s emergency lending powers further than they went even in the depths of the 2008 financial crisis: They plan to buy municipal debt and to help both large and midsize companies gain access to credit.
The efforts come as quarantines and stay-at-home orders send growth plummeting. The economy contracted at a 4.8 percent annualized rate in the first quarter, the worst reading since 2008, as spending on services dived.
U.S. gross domestic product, the broadest measure of goods and services produced in the economy, fell at a 4.8 percent annual rate in the first quarter of the year, the Commerce Department said Wednesday. That is the first decline since 2014, and the worst quarterly contraction since the country was in a deep recession more than a decade ago.
Even so, most of the quarter came before the coronavirus pandemic forced widespread shutdowns and layoffs. Economists expect figures from the current quarter to show G.D.P. contracting at an annual rate of 30 percent or more.
“They’re going to be the worst in our lifetime,” Dan North, chief economist for the credit insurance company Euler Hermes North America.
Treasury Secretary Steven Mnuchin said this week that the economy should “really bounce back” this summer as states lift stay-home orders and trillions of dollars in federal emergency spending reaches businesses and households. Most independent economists are much less optimistic.
The estimates issued on Wednesday are preliminary and based on incomplete data, particularly for March. Some economists expect final figures, due later this spring, to show an even bigger decline.
The S.B.A. will block big banks from small-business loan applications for several hours.
The Small Business Administration said on Wednesday that it was blocking big lenders from submitting applications for the emergency small business lending program for nearly eight hours this evening so that small lenders are able to use its loan processing system.
In a memo to lenders, the agency said that the system would only be available to lenders with less than $1 billion in assets from 4 p.m..
The S.B.A. and the Treasury Department are evaluating whether they will need to block off such windows of time in the future. Smaller lenders have been shut out of the system after the Payroll Protection Program restarted this week as a crush of applications caused it to freeze or time out.
Treasury Secretary Steven Mnuchin said on Twitter that the decision was made to ensure small banks and community lenders could gain access to the S.B.A. portal.
The decision was quickly met with disappointment by some banking groups.
“This I don’t agree — many small businesses went to banks over $1 billion to help provide for their family,” Richard Hunt, chief executive of the Consumer Bankers Association, said in a post on Twitter. “There was already a carve out for small banks and now this. Don’t play favorites with small businesses. All need a lifeline right now.”
Stocks rallied on Wednesday, boosted by indications that a drug being tested as a possible treatment for Covid-19 could be showing progress, and as investors pinned their hopes on the gradual reopening of the world’s major economies.
The gains came despite data that showed the U.S. economy shrank by the most since 2008 in the first quarter of the year. Earnings reports from Volkswagen, Samsung, Airbus, Boeing and other giant businesses were also grim.
But investors have been shaking off bad news on the economy for weeks as they focus on progress on efforts to contain the coronavirus pandemic. A steady climb has lifted the S&P 500 by nearly 30 percent since its March 23 low. With nearly half that gain coming in April, the month is on track to be the best for stocks since 1974.
The trading on Wednesday had all the hallmarks of a rally fueled by hopes of a return to normal, with shares of airlines and cruise operators — both industries that are dependent on the end of restrictions and the return of travelers — among the best performing stocks in the S&P 500. Oil producers also rallied as the price of crude oil surged.
A rally in the stocks of large technology companies, which have an outsize impact on the overall market, also helped. Alphabet rose more than 8 percent the day after it reported its first-quarter earnings, and Facebook was more than 5 percent higher.
The S&P 500 gained about 3 percent, and major benchmarks in Europe were also higher.
The mood in the stock market rose after the drugmaker Gilead Sciences said it was “aware of positive data” emerging from a trial of its antiviral drug being conducted by the National Institute of Allergy and Infectious Diseases. The drug, remdesivir, is being tested as a treatment for Covid-19, the illness caused by the coronavirus.
Gilead didn’t elaborate, and another study published on Wednesday found that remdesivir offered no benefit to patients in China who are severely ill with Covid-19.
But investors have been quick to react to incremental updates on the various trials underway.
Oil prices surged, with gains picking up steam after a weekly report on crude oil stockpiles showed they increased by less than expected. Investors have been worried about a glut of crude as demand for energy plunges, along with storage capacity in the United States. On Wednesday, West Texas Intermediate crude, the U.S. benchmark, rose 22 percent to more than $15 a barrel. Brent crude, the international benchmark, was trading at a little under $23 a barrel, up about 11 percent.
Trump declared meatpacking plants ‘critical,’ but how they would stay open remains unclear.
President Trump’s declaration on Tuesday that meatpacking plants were “critical infrastructure” that should be kept open during the pandemic sent a powerful signal that protecting the nation’s food supply was a federal priority.
But exactly how the executive order would keep plants running, even in the midst of outbreaks that have sickened thousands of workers and turned the facilities into hot spots, was unclear.
“This is more symbolism than substance,” said Steve Vladeck, a law professor at the University of Texas. “He’s opening the door for the executive branch to take some far more specific actions vis-à-vis the meat plants, but the order itself doesn’t do anything.”
While the order does not explicitly mandate that plants stay open, it could allow the Department of Agriculture to potentially force meat companies to fulfill orders from retailers, effectively keeping them in some capacity.
Lyft plans to lay off 17 percent of its employees, the company said in a regulatory filing, as the ride-hailing company struggles with a downturn caused by the coronavirus pandemic.
The company told staff about the cuts in an email on Wednesday. Five percent of workers will be furloughed, and remaining employees will take a pay cut. Executive pay will be reduced 30 percent, pay for vice presidents will be reduced 20 percent, and pay for other workers will be reduced 10 percent.
A Lyft spokesman declined to comment.
The company’s co-founders, Logan Green and John Zimmer, had reassured employees during internal chats that layoffs are not imminent and that the company had enough cash on hand to weather the crisis, said two people familiar with the discussions who spoke on condition of anonymity.
But on Saturday, in an apparent mistake, a company lawyer sent out a calendar invite to many of the company’s more than 6,000 employees. The invitation was for a meeting called “Jetty,” and workers at Lyft interpreted it as a sign that the company planned to jettison jobs. The invitation, which was seen by The New York Times, quickly disappeared from employees’ calendars, but became a topic of heated debate among employees this week.
Boeing reported $16.9 billion of revenue in the first quarter of the year, a 26 percent decline from last year, as the aviation industry ground to a halt during the coronavirus pandemic. The company said Wednesday that it planned to cut its work force by about 10 percent, a reduction it hopes to achieve voluntarily, through buyouts and early retirement offers.
“I know this news is a blow during an already challenging time. I regret the impact this will have on many of you. I sincerely wish there were some other way,” said David L. Calhoun, Boeing’s chief executive, in a note to staff.
As of the start of the year, Boeing and its subsidiaries employed more than 143,000 employees.
With airlines delaying purchases, deliveries and maintenance, Boeing is slowing production rates, including for the troubled 737 Max jet, and is working to increase access to capital. It is planning even deeper cuts of 15 percent to the commercial airplanes and services businesses, which are the most exposed to the downturn in the industry.
“The pandemic is also delivering a body blow to our business — affecting airline customer demand, production continuity and supply chain stability,” Mr. Calhoun said.
Boeing does not expect air travel to recover to pre-pandemic levels for at least two to three years and said it would likely take several years more for the long-term trend in growth to recover.
Here are the other big companies that reported earnings today.
The deluge of first-quarter reports this week is giving investors a detailed look at how the start of the coronavirus crisis affected businesses. Of course, second-quarter earnings this year may well be even more grim.
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General Electric said Wednesday that overall revenue fell 8 percent to $20.5 billion in the first quarter of the year. The coronavirus pandemic especially affected the aviation division, which saw a 13 percent decline. But the health care sector of the business, which doubled its production of ventilators and increased its manufacturing of other medical equipment used in the diagnosis and treatment of Covid-19, saw revenue increase by 7 percent, to $5.3 billion.
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The restaurant giant Yum Brands said on Wednesday that same-store sales across its brands had dropped 7 percent in the first quarter. Sales at K.F.C. shrank 8 percent, while Pizza Hut sales dropped 11 percent. But sales at Taco Bell — which has been offering drive-through service throughout the pandemic — rose 1 percent.
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Airbus, the European aircraft giant, reported on Wednesday a net loss of 481 million euros (about $522 million) in the first quarter of 2020, a reversal from a profit of 40 million euros in the same period a year ago. The company said that it delivered 122 commercial aircraft compared with 162 in the first quarter of 2019.
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Volkswagen, the world’s largest carmaker, said that vehicle sales fell 25 percent in the first three months of the year, a vivid indication of the havoc that the coronavirus is causing throughout the auto industry. The company, based in Wolfsburg, Germany, said that it sold 1.9 million vehicles in the first quarter compared with 2.6 million in the first quarter of 2019. Profit also collapsed, falling more than 80 percent to 517 million euros, or $562 million.
Should there be deals during a pandemic?
Senator Elizabeth Warren and Representative Alexandria Ocasio-Cortez have escalated Washington’s pushback against corporate mergers during the pandemic. The two Democrats introduced a bill on Tuesday that would temporarily block most mergers and acquisitions, a similar proposal to the one made last week by Representative David Cicilline, the Democrat who leads the House antitrust panel.
This is unlikely to go anywhere in the Republican-controlled Senate, but it’s part of a growing campaign to limit mergers during the coronavirus crisis, especially acquisitions of smaller firms by bigger rivals and most deals involving private equity firms or hedge funds.
And, as discussed in today’s DealBook newsletter, the proposals could push the presumptive Democratic presidential nominee, Joseph R. Biden Jr., to adopt a similar stance, as anger grows over the distribution of rescue loans and terms attached to industry bailouts.
Catch up: Here’s what else is happening.
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Volkswagen said on Wednesday that it would not restart production at its plant in Chattanooga, Tenn., on May 3, a date it announced just a week earlier. The German automaker did not provide a new start date, and said in a statement that it would first “weigh the readiness of the supplier base, as well as market demand and the status of the Covid-19 outbreak.”
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Fiesta Restaurant Group, the parent company of Pollo Tropical and Taco Cabana, said it was returning a $15 million loan from the Paycheck Protection Program. Several other large companies, including AutoNation, Shake Shack and the owner of Ruth’s Chris Steak Houses, have also disclosed that they were returning money they had received through the small-business loan program.
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A group of several hundred Walmart workers are planning a walkout on Wednesday to protest what they say are unsafe working conditions in the retailer’s stores. Organized by the labor group United for Respect, the “Call Out” is meant to highlight how, some employees say, the retailer has failed to enforce social distancing in many of its stores. Walmart has said it is supplying personal protective gear, like masks, for all its employees and limiting store hours to control crowds.
Reporting was contributed by Taylor Lorenz, Ben Casselman, Jaclyn Peiser, Stanley Reed, Jack Ewing, Ben Dooley, Keith Bradsher, Alan Rappeport, Jeanna Smialek, David Yaffe-Bellany, Jason Karaian, Kate Conger, Mike Isaac, Neal E. Boudette, Michael Corkery, Sapna Maheshwari, Gregory Schmidt, Mohammed Hadi, Katie Robertson, Carlos Tejada, Mike Ives and Kevin Granville.