• Market Crumbs

Powell Warns Of Weak Growth

Federal Reserve Chairman Jerome Powell spoke yesterday at the Peterson Institute for International Economics, providing a somber tone on the economy and what needs to be done to help soften the blow.

Powell said the U.S. economy could face an "extended period" of weak growth, warning "deeper and longer recessions can leave behind lasting damage to the productive capacity of the economy."

Powell referenced a recent Federal Reserve survey that estimated 40% of households earning less than $40,000 in income consist of someone who has lost their job since February.

Despite the slew of policy actions taken to help stimulate the economy, Powell believes more may be needed.

"While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks," Powell said. "Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery."

Powell joined the slew of Federal Reserve members who this week have pushed back against the idea of negative interest rates.

"I know there are fans of the policy, but for now it’s not something that we’re considering," Powell said regarding negative rates. "The committee’s view on negative rates really has not changed. This is not something that we’re looking at."

U.S. President Donald Trump will not be pleased, as he tweeted earlier this week "As long as other countries are receiving the benefits of Negative Rates, the USA should also accept the 'GIFT'. Big numbers!"

Powell seemed confident that the economy will recover, eventually.

"It will take some time to get back to where we were," Powell said. "There is a sense, growing sense I think, that the recovery may come more slowly than we would like. But it will come, and that may mean that it’s necessary for us to do more."

As the coronavirus continues to takes its toll on the U.S. economy, it will be interesting to see if further damage to the economy or stock market will push Powell and the Federal Reserve to reconsider taking rates into negative territory.

Leftover Crumbs

  • Home buyers making a comeback. Mortgage applications to purchase a home rose 11% last week, the fourth-consecutive weekly increase, according to the Mortgage Bankers Association's seasonally adjusted index. The level of mortgage applications to purchase a home is still 10% below the same period last year, however, a month ago volume had fallen 35% below the same period a year earlier. Conversely, refinance applications fell 3% last week, the fourth-consecutive weekly decline amid near record low mortgage rates.

  • Buybacks are slowing. Stock buybacks in the second quarter are on pace to fall about 90% from prior quarters, marking the lowest total on record, according to Bank of America. Amid the recent market declines as a result of the coronavirus, companies have increasingly suspended buybacks and dividends to preserve cash. "Buybacks remained extremely anemic, with QTD buybacks tracking just over $1bn — on pace for a record-low ~$2bn quarter in our data history," Bank of America said in its report.

  • Is Musk heading to the Lone Star state? As Tesla co-founder and CEO Elon Musk continues to spar with Alameda County officials over resuming production at Tesla's Fremont plant, Musk has held discussions with Texas Governor Greg Abbott about moving production to Texas. "I’ve had the opportunity to talk to Elon Musk and he’s genuinely interested in Texas and genuinely frustrated with California," Abbott said. "We’ve just got to wait and see how things play out."

  • Facebook settles. Facebook has agreed to a $52 million settlement with current and former content moderators who developed mental health issues on the job. The settlement covers 11,250 moderators, each of who will be given a minimum of $1,000 with the possibility to earn more if they are diagnosed with post-traumatic stress disorder or related conditions. "We are grateful to the people who do this important work to make Facebook a safe environment for everyone," Facebook said. "We’re committed to providing them additional support through this settlement and in the future."

  • They don't have to ever come back. Twitter has informed employees that if they wish, they can work from home indefinitely. "If our employees are in a role and situation that enables them to work from home and they want to continue to do so forever, we will make that happen," a Twitter spokesperson said. "If not, our offices will be their warm and welcoming selves, with some additional precautions, when we feel it’s safe to return."