Fed’s Powell says support for economy needed for ‘some time’

By Howard Schneider

WASHINGTON (Reuters) – The U.S. economic recovery remains “uneven and far from complete” and it will be “some time” before the Federal Reserve considers changing policies it adopted to help the country back to full employment, Fed Chair Jerome Powell said on Tuesday.

The U.S. central bank’s interest rate cuts and purchases of $120 billion in monthly government bonds “have materially eased financial conditions and are providing substantial support to the economy,” Powell said in remarks prepared for delivery to a Senate Banking Committee hearing on the state of the economy.

“The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved,” the hurdle the Fed has set for discussing when it might be appropriate to pare back support.

While the health crisis in the country is improving and “ongoing vaccinations offer hope for a return to more normal conditions later this year,” Powell said, “the path of the economy continues to depend significantly on the course of the virus and the measures taken to control its spread.”

Powell’s appearance in Congress comes at a significant juncture for the U.S. economy, which is still reeling from the pandemic but perhaps poised to take off later this year if the vaccination program hits its stride.

The hearing before the Senate Banking Committee, one of the Fed chief’s mandated twice-a-year appearances on Capitol Hill, is Powell’s first since Democrats won the White House and control of both chambers of Congress.

After his opening remarks, Powell will field questions from senators who are likely to focus on the tension between a pandemic that has claimed more than half a million U.S. lives and left millions unemployed, and an economy flush with savings and central bank support, and about to get a fresh gusher of federal spending.

INFLATION DEBATE

The growing likelihood that Congress will pass President Joe Biden’s $1.9 trillion stimulus plan has raised concerns about a possible spike in inflation and overheating in asset markets, but Powell’s message to lawmakers will likely be a familiar one: don’t let off the gas.

Even with Americans being vaccinated at a rate of more than 1.5 million a day and coronavirus caseloads dropping, Powell and his fellow Fed policymakers are focused instead on the nearly 10 million jobs missing from the economy compared to a year ago, and the potent risks still posed by the virus.

They’ve pledged to keep interest rates low and use other monetary policy tools to speed up a labor market recovery. Two weeks ago, Powell pushed for a “society-wide commitment” to that goal – a nudge to lawmakers debating Biden’s stimulus plan.

The scale of the proposed stimulus, coming on the heels of about $4 trillion in federal aid and heavy bond purchases by the Fed last year, has flustered the feathers of inflation hawks and stoked criticism that the U.S. central bank has boosted prices of stocks and other assets to unsustainable levels.

Fed officials are united on that front. They don’t think inflation is a risk, and regard much of the recent rise in stock prices, for example, as a sign of markets’ confidence in a post-pandemic economic rebound, not an artificial run-up fueled by cheap money.

The hearing on Tuesday, which will be followed by Powell’s appearance before the House of Representatives Financial Services Committee on Wednesday, may also provide a gauge of his prospects of remaining Fed chief when his current four-year term expires early next year.

Biden will have to decide in coming months whether to reappoint Powell, who was chosen for the job by former President Donald Trump. The nomination is subject to Senate ratification.

(Reporting by Howard Schneider; Editing by Paul Simao)

Indonesia’s president promises to rebuild city hit by earthquake as death toll reaches 90

JAKARTA (Reuters) – Indonesia will rebuild homes and buildings ravaged by a powerful earthquake that struck Sulawesi island last week, President Joko Widodo said on Tuesday, as the death toll reached 90 and thousands more people were displaced.

The 6.2-magnitude earthquake caused significant damage to hundreds of homes, a mall, hospital, hotels and government buildings early on Friday and has been followed by more than 39 aftershocks since.

“Soon the central government will rebuild, then for collapsed houses, the government will help for those that were heavily damaged,” Widodo said as he visited the city of Mamuju earlier on Tuesday.

The Indonesian government will give as much as 50 million rupiah ($3,558.72) for the rebuilding of “heavily damaged” houses, while houses with “medium” and “minor” damages will given up to 25 million rupiah and 10 million rupiah respectively.

“We hope that with the help of the central government, the recovery of collapsed houses, economic recovery, recovery of service processes in government and the bureaucracy will also return to normal,” he said.

Earlier on Tuesday, a military official who is part of the country’s official search and rescue joint forces, said that nearly 10,000 people have been evacuated from Mamuju and the nearby city, Majene.

Many of them have fled to Parepare, a neighboring city more than 250km south of Mamuju and nearly 150km from Majene, the official said.

Straddling the Pacific “Ring of Fire,” Indonesia is regularly hit by earthquakes. In 2018, a 7.5-magnitude quake and subsequent tsunami struck Palu, in Sulawesi, killing thousands.

The country’s meteorology agency has warned of continued aftershocks, and the risk of extreme weather in coming weeks.

Indonesia has faced a string of disasters this month, including a plane crash on Jan. 9 that killed all 62 on board, a flash flood in South Kalimantan on Borneo island that killed at least 15, volcanic eruptions and a deadly landslide that killed 40 in Java.

($1 = 14,050.0000 rupiah)

(Reporting by Heru Asprihanto, Stanley Widianto; Writing by Fathin Ungku; Editing by Bernadette Baum)

McConnell: Signs of economic recovery point to smaller COVID-19 stimulus

By David Morgan

WASHINGTON (Reuters) – U.S. Senate Majority Leader Mitch McConnell said on Friday that economic statistics, including a 1 percentage point drop in the unemployment rate, showed that Congress should enact a smaller coronavirus stimulus package that is highly targeted at the pandemic’s effects.

The Republican senator told a news conference in Kentucky that the fall to a 6.9% jobless rate, combined with recent evidence of overall economic growth, showed the U.S. economy is experiencing a dramatic recovery.

“I think it reinforces the argument that I’ve been making for the last few months, that something smaller – rather than throwing another $3 trillion at this issue – is more appropriate,” McConnell told reporters.

But his call for a narrow package was quickly rejected by House of Representatives Speaker Nancy Pelosi, a Democrat, who has been working to broker a COVID-19 stimulus deal near the $2 trillion mark with Treasury Secretary Steven Mnuchin.

“It doesn’t appeal to me at all, because they still have not agreed to crush the virus. If you don’t crush the virus, we’re still going to have to be dealing with the consequences of the virus,” Pelosi told a news conference on Capitol Hill.

“That isn’t anything that we should even be looking at. It wasn’t the right thing before,” she added.

Senate Republicans, who oppose a larger package, have twice failed to move forward with smaller legislation worth $500 billion due to Democratic opposition.

Pelosi insisted that any agreement must include effective support for testing, tracing and vaccine development, as well as aid to state and local governments. Trump and his Republican allies have balked at Democratic demands for state and local aid, calling it a bailout for Democratic-run states and cities.

(Reporting by David Morgan; editing by Jonathan Oatis)

U.N. chief: time for national plans to help fund global COVID-19 vaccine effort

By Michelle Nichols and Stephanie Nebehay

NEW YORK/GENEVA (Reuters) – U.N. chief Antonio Guterres said on Wednesday it is time for countries to start using money from their national COVID-19 response to help fund a global vaccine plan as the World Bank warned that “broad, rapid and affordable access” to those doses will be at the core of a resilient global economic recovery.

The Access to COVID-19 Tools (ACT) Accelerator and its COVAX facility – led by the World Health Organization and GAVI vaccine alliance – has received $3 billion, but needs another $35 billion. It aims to deliver 2 billion vaccine doses by the end of 2021, 245 million treatments and 500 million tests.

At a high-level virtual U.N. event on the program, WHO chief Tedros Adhanom Ghebreyesus said the financing gap was less than 1% of what the world’s 20 largest economies (G20) had committed to domestic stimulus packages and “it’s roughly equivalent to what the world spends on cigarettes every two weeks.”

German Chancellor Angela Merkel pledged $100 million to GAVI to help poorer countries gain access to a vaccine and Johnson & Johnson Chief Executive Alex Gorsky committed 500 million vaccine doses for low-income countries with delivery starting in mid-2021.

“Having access to lifesaving COVID diagnostics, therapeutics or vaccines … shouldn’t depend on where you live, whether you’re rich or poor,” said Gorsky, adding that while Johnson & Johnson is “acting at an unprecedented scale and speed, but we are not for a minute cutting corners on safety.”

U.S. President Donald Trump has said that a vaccine against the virus might be ready before the Nov. 3 U.S. presidential election, raising questions about whether political pressure might result in the deployment of a vaccine before it is safe.

“We remain 100 percent committed to high ethical and scientific principles,” Gorsky said.

GAVI Chief Executive Seth Berkley said that so far 168 countries, including 76 self-financing states, have joined the COVAX global vaccines facility. Tedros said this represented 70% of the world’s population, adding: “The list is growing every day.”

China, Russia and the United States have not joined the facility, although WHO officials have said they are still holding talks with China about signing up. The United States has reached its own deals with vaccine developers.

‘LONG HAUL’

World Bank President David Malpass said the pandemic could push 150 million people into extreme poverty by 2021 and the “negative impact on human capital will be deep and may last decades.”

“Broad, rapid and affordable access to COVID vaccines will be at the core of a resilient global economic recovery that lifts everyone,” he said.

Guterres said that the ACT-Accelerator was the only safe and certain way to reopen the global economy quickly.

But he warned that the program needed an immediate injection of $15 billion to “avoid losing the window of opportunity” for advance purchase and production, to build stocks in parallel with licensing, boost research, and help countries prepare.

“We cannot allow a lag in access to further widen already vast inequalities,” Guterres said.

“But let’s be clear: We will not get there with donors simply allocating resources only from the Official Development Assistance budget,” he said. “It is time for countries to draw funding from their own response and recovery programs.”

U.N. Secretary-General Guterres called on all countries to step up significantly in the next three months.

Billionaire Bill Gates told the U.N. event that the Bill & Melinda Gates Foundation had signed an agreement with 16 pharmaceutical companies on Wednesday.

“In this agreement the companies commit to, among other things, scaling up manufacturing, at an unprecedented speed, and making sure that approved vaccines reach broad distribution as early as possible,” Gates said.

Britain’s Foreign Secretary Dominic Raab – a co-host of the meeting along with Guterres, the WHO and South Africa – urged other countries to join the global effort, saying the ACT-Accelerator is the best hope of bringing the pandemic under control.

Said Merkel: “We’re in for the long haul and we need more support.”

(Reporting by Michelle Nichols and Stephanie Nebehay; Editing by Chizu Nomiyama, Paul Simao and Jonathan Oatis)

U.S. labor market slowing as fiscal stimulus fades

By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing new claims for unemployment benefits unexpectedly increased last week, supporting views the economic recovery from the COVID-19 pandemic was running out of steam amid diminishing government funding.

The weekly jobless claims report from the Labor Department on Thursday, the most timely data on the economy’s health, also showed 26 million people were on unemployment benefits in early September. The faltering labor market recovery and a recent rise in new coronavirus infections has piled pressure on Congress and the White House to come up with another rescue package.

Federal Reserve Chair Jerome Powell told lawmakers on Wednesday that Congress and the U.S. central bank needed to “stay with it” in working to support the economy’s recovery. More fiscal stimulus is looking increasingly unlikely before the Nov. 3 presidential election.

“The high level of joblessness shows that the country isn’t out of the woods yet and it won’t be if the pleading of Fed officials for more stimulus isn’t heard by government officials down in Washington,” said Chris Rupkey, chief economist at MUFG in New York. “The economy is running on empty.”

Initial claims for state unemployment benefits rose 4,000 to a seasonally adjusted 870,000 for the week ended Sept. 19. Data for the prior week was revised to show 6,000 more applications received than previously reported. Economists polled by Reuters had forecast 840,000 applications in the latest week.

Unadjusted claims increased 28,527 to 824,542 last week. Economists prefer the unadjusted claims number given earlier difficulties adjusting the claims data for seasonal fluctuations because of the economic shock caused by the coronavirus crisis.

Six months after the pandemic started in the United States, jobless claims remain above their 665,000 peak during the 2007-09 Great Recession, though applications have dropped from a record 6.867 million at the end of March.

While the reopening of businesses in May boosted activity, demand in the vast services industries has remained lackluster, keeping layoffs elevated. Job cuts have also spread to industries such as financial services and technology that were not initially impacted by the mandated business closures in mid-March because of insufficient demand.

A total 630,080 applications were received for the government-funded pandemic unemployment assistance last week. The PUA is for the self-employed, gig workers and others who do not qualify for the regular state unemployment programs. Altogether, 1.5 million people filed claims last week.

Stocks on Wall Street were trading lower. The dollar gained versus a basket of currencies. U.S. Treasury prices rose.

STALLED PROGRESS

The claims report also showed the number of people receiving benefits after an initial week of aid dropped 167,000 to 12.58 million in the week ending Sept. 12.

Economists believed the so-called continuing claims are declining as people exhaust their eligibility for benefits, which are limited to 26 weeks in most states.

Indeed, just under one million workers exhausted their first six months of state unemployment benefits in August. At least 1.6 million workers filed for extended unemployment benefits in the week ending Sept. 5, up 104,479 from the prior week.

The continuing claims data covered the period during which the government surveyed households for September’s unemployment rate. The decline in mid-September implied a further decrease in the unemployment rate from 8.4% in August.

“Only faster progress against the virus itself will assuage the unemployment struggles of so many workers in fields like entertainment who can’t return to their jobs until social distancing restrictions are relaxed ,” said Andrew Stettner, senior fellow at The Century Foundation in New York.

The Fed has cut interest rates to near zero and vowed to keep borrowing costs low for a while, and has also been pumping money into the economy. Government money to help businesses has virtually dried up. Tens of thousands of airline workers are facing layoffs or furloughs next month.

A $600 weekly unemployment benefits supplement ended in July and was replaced with a $300 weekly subsidy, whose funding is already running out. The death toll from COVID-19 in the country topped 200,000 on Tuesday, the highest number of any nation.

The ebbing fiscal stimulus is already restraining the economy after activity rebounded sharply over the summer. Gross domestic product is expected to rebound at as much as a record 32% annualized rate in the third quarter after tumbling at a 31.7% rate in the April-June period, the worst performance since the government started keeping records in 1947.

But retail sales and production at factories moderated in August. Business activity cooled in September, reports have shown. Goldman Sachs on Wednesday cut its fourth-quarter GDP growth estimate to a 3% rate from a 6% pace, citing “lack of further fiscal support.”

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

Virtual schooling dents retail sales, Trump economic message

By Ann Saphir

(Reuters) – Slower-than-expected sales at retailers in August suggest a speed bump is emerging in the U.S. economic recovery from coronavirus lockdowns, less than two months before the Nov. 3 presidential election.

Overall, retail sales have returned to their pre-crisis levels and then some, gaining 0.6% in August, the Commerce Department said on Wednesday. The rebound plays into U.S. President Donald Trump’s narrative of resurgent growth after a sharp pandemic downturn. Incumbent presidents are generally helped at the polls by a strong economy, and hurt by a weak one.

But last month’s rise was driven in part by an increase in gasoline prices, not typically a cause for consumer celebration. Meanwhile core retail sales, a closer measure of underlying spending trends, fell 0.1% last month. Both readings fell short of economists’ expectations.

Back-to-school shopping season, or the lack of it, was one cause. Many students actually could not head back to the classroom because of COVID-19 restrictions, and their curbed spending on supplies helped drive down core retail spending, said Regions Financial Corp economist Richard Moody. Meanwhile, a jump in sales at restaurants and bars drove most of the gain in overall retail sales.

The softening comes as nearly 30 million Americans are on some form of unemployment insurance. An extra $600 weekly that out-of-work-adults were getting in government aid expired at the end of July; it was replaced by a program that sent out $300 payments, but stopped taking new applicants on Sept. 10.

Lawmakers have so far failed to agree to any new aid package, and without more fiscal help, economists say the recovery will stall.

“The economy is weak: there are no two sides around that,” says Eric Winograd, senior economist at AllianceBernstein. Part of a voter’s calculus in picking a president may be, “Do you think additional stimulus is necessary, and if so what do you want that to look like?”

(Reporting by Ann Saphir; editing by Heather Timmons and Nick Zieminski)

‘There is a real risk’ of new outbreak if U.S. states reopen too soon: Fauci

By Makini Brice and Richard Cowan

WASHINGTON (Reuters) – Leading U.S. infectious disease expert Anthony Fauci on Tuesday warned Congress that a premature lifting of lockdowns could lead to additional outbreaks of the deadly coronavirus, which has killed 80,000 Americans and brought the economy to its knees.

Fauci, director of the National Institute of Allergy and Infectious Diseases, told a U.S. Senate panel that states should follow health experts’ recommendations to wait for signs including a declining number of new infections before reopening.

President Donald Trump has been encouraging states to end a weeks-long shuttering of major components of their economies. But senators heard a sobering assessment from Fauci, when asked by Democrats about a premature opening of the economy.

“There is a real risk that you will trigger an outbreak that you may not be able to control and, in fact paradoxically, will set you back, not only leading to some suffering and death that could be avoided but could even set you back on the road to try to get economic recovery,” Fauci said.

The COVID-19 respiratory disease caused by the new coronavirus has infected more than 1.3 million Americans and killed more than 80,600.

Fauci, a member of Trump’s coronavirus task force, told the Senate Health, Education, Labor and Pensions Committee that the nation’s efforts to battle the deadly virus and the COVID-19 disease it triggers should be “focused on the proven public health practices of containment and mitigation.”

Fauci, 79, testified remotely in a room lined with books as he self-quarantines after he may have come into contact with either of two members of the White House staff who were diagnosed with COVID-19. He noted that he may go to the White House if needed.

“All roads back to work and back to school run through testing and that what our country has done so far on testing is impressive, but not nearly enough,” Lamar Alexander, the Republican chairman of the Senate committee, said in an opening statement to Tuesday’s hearing.

Alexander is also self-quarantining in his home state of Tennessee for 14 days after a member of his staff tested positive. Alexander chaired the hearing virtually.

Democrats on the health committee largely concentrated on the risks of opening the U.S. economy too soon, while Republicans downplayed that notion, saying a prolonged shutdown could have serious negative impacts on people’s health and the health of the economy.

Trump, who previously made the strength of the economy central to his pitch for his November re-election, has encouraged states to reopen businesses that had been deemed non-essential amid the pandemic.

His administration has largely left it to states to decide whether and how to reopen. State governors are taking varying approaches, with a growing number relaxing tough restrictions enacted to slow the outbreak, even as opinion polls show most Americans are concerned about reopening too soon.

Senator Patty Murray, the senior committee Democrat, criticizing aspects of the administration’s response to the pandemic, said Americans “need leadership, they need a plan, they need honesty and they need it now, before we reopen.”

Others testifying on Tuesday included U.S. Centers for Disease Control and Prevention Director Robert Redfield, Assistant Secretary for Health Brett Giroir and Food and Drug Administration Commissioner Stephen Hahn. Each testified remotely.

Meanwhile, House Majority Leader Steny Hoyer, a Democrat, told reporters that a Democratic bill to provide significant new federal aid in response to the coronavirus pandemic could be unveiled later on Tuesday, with a possible House of Representatives votes on it on Friday.

(GRAPHIC: Tracking the novel coronavirus in the U.S. – https://graphics.reuters.com/HEALTH-CORONAVIRUS-USA/0100B5K8423/index.html)

(Reporting by Richard Cowan, Makini Brice, Doina Chiacu and Tim Ahmann; Editing by Scott Malone and Alistair Bell)