Reuters News - Fed rolls out $2.3 trillion to backstop 'Main Street,' local governments

WASHINGTON (Reuters) - The U.S. Federal Reserve on Thursday announced a broad, $2.3 trillion effort to bolster local governments and small and mid-sized businesses, the latest in an expanding suite of programs meant to keep the U.S. economy intact as the country battles the coronavirus pandemic.

Announcing details of a promised effort to put its financial weight behind “Main Street,” the Fed said it would work through banks to offer four-year loans to companies of up to 10,000 employees, and begin to directly lend to state governments and more populous counties and cities to help them respond to the crisis.

It may prove to be the Fed’s most groundbreaking step yet in the battle against the economic fallout from a health crisis that has seen a record-shattering 16.8 million people file for unemployment benefits in just three weeks and seen untold numbers of businesses forced to shutter under social distancing rules.

As the pandemic advanced, the Fed set aside inhibitions about inflation, political blowback and other risks that arguably slowed its response to the 2007 to 2009 crisis, and in a matter of weeks has sequentially extended safety nets to different parts of the economy. On Thursday it added help for some key remaining constituencies - small firms, mid-sized industries, local governments, and even corporations which might find their credit standing downgraded because of a fast-evolving economic downturn.

Fed Chair Jerome Powell said the demands of the crisis have led the central bank to broaden its role beyond the usual focus on keeping markets “liquid” and functional, to helping the United States get the economic and financial space it needs to fix a dire health emergency.

Any reopening of the economy should not be rushed said Powell, warning of any “false start,” and the focus of the Fed and elected officials should be on keeping people financially “whole” until the recovery begins.

“People are undertaking sacrifices for the common good,” Powell said in webcast remarks hosted by the Brookings Institution. “We should make them whole. They did not cause this. This is what the great fiscal power of the United States is for, to protect these people from the hardships they are facing.”

Though many of the programs are due to lapse in September, Powell said the Fed’s commitment would only be limited by the need to get the pandemic controlled and try to build a robust recovery - once health authorities have declared it safe to reopen for business, however long that takes.

“We are deploying these lending powers to an unprecedented extent…We will continue to use these powers forcefully, proactively, and aggressively until we are confident that we are solidly on the road to recovery,” Powell said.

The Fed’s latest salvo helped lift U.S. stocks while other global equity benchmarks also gained.

HELPING LOCAL GOVERNMENTS

The program offers to pump up to $500 billion into local governments, which are both on the front lines of the health battle yet also may see tax revenues collapse as unemployment rises and businesses are shut under social distancing rules aimed at curbing the spread of the virus.

The Fed in this case is directly buying municipal bonds of up to two year’s duration – a step called for by some Democrats in the U.S. House of Representatives as a needed prop for local governments. The Fed’s assistance will be available to the states, the District of Columbia, counties with more than 2 million residents, and cities of more than 1 million.

The new “Main Street” facility will use banks to funnel up to $600 billion in loans of at least $1 million to firms that have up to 10,000 employees or less than $2.5 billion in revenue, an effort to expand the safety net for businesses begun under the CARES act recently passed by Congress.

“The Fed made history today” by throwing its vault open to small and medium-sized businesses that are at the core of the U.S. economy, said Joe Brusuelas, an economist who focuses on mid-sized companies with consulting firm RSM.

“This a robust first step towards providing a lending facility that will stem what was a likely solvency crisis inside the critical small and medium-size commercial community.” He said he expected demand for loans under the new Fed facility to be high, and that it might be expanded to as much as $1 trillion as further rescue steps are taken in Congress.

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That rescue bill authorizes direct loans by the U.S. Treasury to some larger firms, and $350 billion for businesses with under 500 workers. Payments on the new Main Street loans will be deferred for a year; banks will be required to keep at least a 5% stake in each loan.

Firms receiving the loans “must commit to make reasonable efforts to maintain payroll and retain workers,” and cannot use them to refinance existing debt, and must follow the limits on things like dividend payments and compensation set out for larger firms.

The central bank may not be done. The programs announced on Thursday rely on $195 billion in capital provided by the U.S. Treasury. That is only a portion of the $454 billion that Treasury was provided under the CARES act for new Fed programs.

The Fed said in its announcement that it would particularly watch the financial performance of local governments to see if more help is needed.

Reporting by Howard Schneider; Additional reporting by Ross Kerber; Editing by Chizu Nomiyama, Paul Simao and Andrea Ricci

Our Standards:The Thomson Reuters Trust Principles.

BBC News - Coronavirus: Government agrees emergency funding deal with Bank

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The UK government is set to borrow billions of pounds from its emergency Bank of England overdraft to finance the fight against Covid-19.

The government will draw money from the Bank's "ways and means" facility to help workers and businesses.

It has not used the facility since the financial crisis.

While it is controversial for a central bank to hand cash directly to the government, the Bank and Treasury insist the overdraft is temporary.

In the red

The ways and means facility will give the government a temporary cash buffer as it seeks to raise unprecedented amounts to deal with the coronavirus outbreak.

The last time it was used was at the height of the financial crisis in December 2008.

In normal times the government uses tax revenues to pay for public services such as hospitals and schools.

If there's a shortfall, it borrows the rest from investors by issuing bonds through the Debt Management Office.

But the government needs to raise a lot of money in a short period of time to pay for its economic stimulus package to support the economy.

It may run into funding problems if there aren't enough buyers for its bonds.

While the UK has not suffered a failed auction in the main gilt market since 2009, recent jitters in financial markets meant it couldn't find enough buyers in a short-term debt auction last month.

The ways and means facility gives the government the ability to get cash quickly while minimising any financial market disruption.

It is understood that use of the facility was agreed at the end of March, but strong demand for UK debt has meant it has not yet been needed.

The Bank will charge 0.1% interest on any money withdrawn from the facility. This is the same as the Bank of England base rate.

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In a joint statement, the Treasury and Bank said any use of the facility would be "temporary and short-term".

They added: "The government will continue to use the markets as its primary source of financing, and its response to Covid-19 will be fully funded by additional borrowing through normal debt management operations."

EU law prohibits central banks from printing money to directly fund public authorities.

Left unchecked, so-called "monetary financing" can cause prices to rise uncontrollably, like in Zimbabwe and Venezuela.

However, in the 1990s, Brussels agreed that the UK could maintain the ways and means facility until it decided to adopt the euro.

While the UK has since left the EU, the provision still stands today.

Image copyrightAFP

Image captionWet weather and flooding hit the economy in February

The move comes as the latest official statistics show that the UK economy was stagnant in the three months to February, just before the coronavirus pandemic escalated and lockdown measures were introduced.

The UK's gross domestic product (GDP) rose by just 0.1% between December and February, the Office for National Statistics (ONS) said.

The ONS said: "Before the full effects of coronavirus took hold, the economy continued to show little to no growth."

Rob Kent-Smith, head of GDP at the ONS, said that the fall was down to wet weather and flooding seen across the UK hampering house building.

GDP fell by 0.1% in February, which was worse than expected. Economists had predicted that the economy would in fact grow during the month.

What happens next?

Paul Dales, chief UK economist at Capital Economics, said that GDP could "fall at a speed and magnitude no-one has ever seen and no economy has ever experienced before."

Economic activity is thought to have slowed as social distancing measures have kept people away from offices, shops, cafes and restaurants.

Mr Dales added: "What happens next depends on how long the lockdowns last and how quickly households and businesses get back to normal.

"We've assumed a three-month lockdown. And while GDP growth would then surge in the months afterwards, households and businesses aren't going to be the same again for a while."

The Ways and Means account has not been used since the financial crisis, and is normally worth £400m. But outside experts say that this will increase by billions, perhaps tens of billions to help the government manage a sharp increase in immediate spending. During the financial crisis this overdraft reached just under £20bn.

It is also a mechanism to account for more direct lending of electronically created money from the Bank of England to the Treasury.

Over the past month there have been some periods of stress in financial markets for some forms borrowing by many governments. Right now, the Treasury is raising a record monthly amount of government borrowing, with auctions of debt on the majority of days.

This helps take the pressure off those processes at a time when tens of billions in cash is being handed out to businesses and to workers, and at a time when tax revenues are likely to stall alongside an economic contraction.

The government says whatever sum is borrowed will be repaid by the end of the year, and this is not a form of so-called "money printing".

But this is also the mechanism suggested by former top Treasury officials through which the Bank could more formally directly buy government debt from the Treasury, rather than buying it on the open market.

That has not been announced today, but is a possible consequence of the expansion of Quantitative Easing by the Bank of England announced last week.

Today's development is a sign of the unusual moves required to account for significant economic policy challenges around the pandemic, and a sign of things to come.

Reuters News - China's Wuhan ends its coronavirus lockdown but elsewhere one begins

WUHAN, China (Reuters) - The Chinese city where the new coronavirus emerged ended its more-than two-month lockdown on Wednesday, even as a small northern city ordered restrictions on residents amid concern about a second wave of infections.

China sealed off Wuhan, a central city of 11 million people, on Jan. 23, a drastic step that came to symbolise its aggressive management of the virus.

More than 50,000 people in Wuhan were infected, and more than 2,500 of them died, about 80% of all deaths in China, according to official figures.

The virus has since spread around the world, infecting more than 1.4 million people, killing 82,000 of them and wreaking havoc on the global economy as governments imposed lockdowns to rein in its spread.

While China has managed to curb its coronavirus epidemic the measures to contain it have exacted a heavy economic and social toll, with many residents in recent days expressing relief as well as uncertainty and worry over the lingering danger of infection.

“I’m going to see my parents,” Wang Wenshu told Reuters as she waited to check in at Wuhan’s Tianhe airport, which reopened on Wednesday.

“Of course I miss them. Stop asking me about it or I’m going to cry.”

Some travellers wore full protective suits, long raincoats or face shields.

Wuhan has slowly been returning towards normal, with people officially allowed to enter the city from March 28, although restrictions remain. Residents have been urged not to leave Wuhan or Hubei province, or even their neighbourhood, unless absolutely necessary.

“We are acutely aware that we must not relax as we have not claimed final victory,” Hubei vice governor Cao Guangjin said at a news conference on Wednesday.

“We need to remain calm, and be just as cautious at the end as at the beginning.”

Shopping malls and the city’s biggest shopping belt, the Chu River and Han street, reopened on March 30. Long queues, thanks to requirements that customers stand a metre apart, have formed at supermarkets while some residents have taken advantage of the warmer weather to resume outdoor badminton games and dancing.

Wuhan has reported just three new confirmed infections in the past 21 days and only two in the past two weeks.

NORTHERN BORDER WORRY

But even as Wuhan came back to life, new imported cases in the far northern province of Heilongjiang surged to a daily high of 25, fuelled by an influx of infected travellers crossing the border from Russia.

On Wednesday, Suifenhe city announced restrictions on the movement of citizens similar to the measures Wuhan has endured.

People must stay in their residential compounds and only one person per family can leave once every three days to buy necessities, and must return on the same day, state-run CCTV reported.

“While the whole country is celebrating the unlocking of Wuhan, few noticed that Heilongjiang is under enormous pressure dealing with infections coming over the border,” one person wrote on the Weibo social media platform.

“Suifenhe is a small city without any high-level hospitals, how can it handle the huge influx of patients?”

Some 55,000 people were expected to leave Wuhan by train on Wednesday. By early morning, more than 10,000 had left by plane, an airport official said. Flights to Beijing and international locations have not resumed.

“I’m very happy, I’m going home today,” migrant worker Liu Xiaomin told Reuters as she stood with her suitcases in Wuhan’s Hankou railway station, bound for Xiangyang city.

People from Wuhan arriving in Beijing must undergo two rounds of testing for the virus.

NEW CASES

China is maintaining strict screening protocols, concerned about any resurgence in infections by virus carriers who exhibit no symptoms and infected travellers arriving from abroad.

China’s new coronavirus cases doubled on Tuesday as the number of infected travellers from overseas surged, while new asymptomatic infections more than quadrupled.

New confirmed cases rose to 62 on Tuesday from 32 a day earlier, the National Health Commission said, the most since March 25. New imported infections accounted for 59 of the cases.

The number of new asymptomatic cases rose to 137 from 30 a day earlier, the health authority said on Wednesday, with incoming travellers accounting for 102 of the latest batch.

Authorities do not count asymptomatic cases in their tally of confirmed infections until patients show symptoms such as a fever or a cough. As of Tuesday, 1,095 asymptomatic patients were under medical observation, with 358 of them travellers arriving from abroad.

To stem infections from outside its borders, China has slashed the number of international flights and denied entry to virtually all foreigners. It also started testing all international arrivals for the virus this month.

As of Tuesday, the total number of confirmed cases in mainland China stood at 81,802, including 3,333 fatalities, the National Health Commission said.

Reporting by Brenda Goh in Wuhan and Ryan Woo, Lusha Zhang, Liangping Gao, Se Young Lee and Yawen Chen in Beijing; Writing by Engen Tham and Gabriel Crossley; Editing by Michael Perry, Richard Pullin and Giles Elgood

Our Standards:The Thomson Reuters Trust Principles.

BBC News - Calls for debt relief for world's poorest nations

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More than 100 global organisations are calling for debt payments of developing countries to be dropped this year.

These countries include the world's poorest economies which are struggling with the impacts of coronavirus.

Major charities including Oxfam and ActionAid International are asking for the debt relief, which would free up more than $25bn (£20bn) this year.

They have written to world leaders and major central banks calling for a range of debt relief measures.

The call is being spearheaded by UK-based charity Jubilee Debt Campaign and comes a day before a meeting of the G20 group of the world's largest and fastest-growing economies.

"Developing countries are being hit by an unprecedented economic shock, and at the same time face an urgent health emergency," said Sarah-Jayne Clifton, director of the Jubilee Debt Campaign.

"The suspension on debt payments called for by the IMF and World Bank saves money now, but kicks the can down the road and avoids actually dealing with the problem of spiralling debts."

The campaigners want debt payments to be cancelled with immediate effect, including payments to private creditors.

"This is the fastest way to keep money in countries to use in responding to Covid-19, and to ensure public money is not wasted bailing out the profits of rich private speculators," added Ms Clifton.

Calculations from non-profit network Eurodad show that 69 of the world's poorest countries are due to pay $19.5bn to other governments and multilateral institutions, and $6bn to external private lenders this year.

The International Monetary Fund (IMF) has made $50bn available in emergency financing while the World Bank has approved a $14bn response package to the most vulnerable economies. The IMF wants to target the money at countries with weak health systems to help them respond to the epidemic.

Meanwhile, the World Bank's funding is aimed at both supporting the health and financial impact of the virus. These will include low-cost loans, grants and technical assistance.

During the coronavirus pandemic, campaigners want debt relief to be applied for all countries in need, and most urgently for the poorest countries. Looking more long-term, they want a process to reduce debts to a sustainable level after the crisis.

This involves asking the IMF to introduce clear guidelines on when a debt is unsustainable, and follow its policy only to lend to countries with unsustainable debts if there is a default or debt restructuring plan in place.

In a blog on Monday, the IMF said the pandemic had pushed the world into a recession. "For 2020 it will be worse than the global financial crisis. The economic damage is mounting across all countries, tracking the sharp rise in new infections and containment measures put in place by governments".

Reuters News - Japan to declare coronavirus emergency, launch $990 billion stimulus: PM

TOKYO (Reuters) - Japan is to impose a state of emergency in Tokyo and six other prefectures as early as Tuesday to try to stop the coronavirus, the prime minister said, with the government preparing a $990 billion stimulus package to soften the economic blow.

More than 3,500 people have tested positive for the coronavirus in Japan and 85 have died - not a huge outbreak compared with some hot spots. But the numbers keep rising with particular alarm over the spread in Tokyo, which has more than 1,000 cases, including 83 new ones on Monday.

“Given the state of crisis on the medical front, the government was advised to prepare to declare the state of emergency,” Prime Minister Shinzo Abe told reporters.

An emergency, which Abe said would last about a month, will give governors authority to call on people to stay at home and businesses to close, but will not be as restrictive as lockdowns in some other countries.

In most cases, there will be no penalties for ignoring requests to stay at home, and enforcement will rely more on peer pressure and respect for authority.

Pressure had been mounting on the government to take the step although Abe had voiced concern about being too hasty, given the restrictions on movement and businesses it would entail.

Abe also said the government has decided to launch a stimulus package of about 108 trillion yen, including more than 6 trillion yen for cash payouts to households and small businesses and 26 trillion yen to allow deferred social security and tax payments.

It was not immediately clear how much of that package would be new government spending.

“The government wants to help businesses continue and protect jobs,” Abe said.

An emergency appears to have public support. In a poll published on Monday by JNN, run by broadcaster TBS, 80% of those surveyed said Abe should declare it while 12% said it was not necessary. His approval rating fell by 5.7 points from last month to 43.2%, the survey showed.

But Kenji Shibuya, director of the Institute for Public Health at King’s College, London, said the emergency was too late given the explosive increase in cases in Tokyo.

“It should have been declared by April 1 at the latest,” he said.

CALL FOR CALM

Sounding an alarm over the high rate of cases that could not be traced, Tokyo Governor Yuriko Koike indicated last week that she would favour a state of emergency as a way to help her urge residents to abide by stronger social-distancing measures.

An expert on the government’s coronavirus panel said Japan could avoid an explosive rise by reducing person-to-person contact by 80%.

Under a law revised in March to cover the coronavirus, the prime minister can declare a state of emergency if the disease poses a “grave danger” to lives and if its rapid spread could have a big impact on the economy.

Economy Minister Yasutoshi Nishimura called for calm saying there was no need for people in designated prefectures to flee to other regions, which could spread infections, NHK reported.

While Japan’s coronavirus epidemic is dwarfed by the 335,000 infections and more than 9,500 deaths in the United States alone, experts worry a sudden surge could overwhelm Japan’s medical system.

Abe must seek formal advice from a panel of experts before deciding to go ahead and declare the emergency.

Governors in Tokyo and elsewhere have asked citizens to stay home on weekends, avoid crowds and evening outings, and work from home. That has had some effect, but not as much as many experts said was needed.

($1 = 109.2200 yen)

Reporting by Chang-Ran Kim and Linda Sieg; Additional reporting by Leika Kihara and Makiko Yamazaki; Editing by Kenneth Maxwell, Robert Birsel

Our Standards:The Thomson Reuters Trust Principles

BBC News - National living wage rises by 6.2%

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A 6.2% increase in the national living wage came into effect on Wednesday.

The increase was announced at the end of last year and was heralded by the government as "the biggest cash increase ever".

The rise is more than three times the rate of inflation and takes hourly pay for people aged 25 and over to £8.72.

It has been welcomed by unions and comes as many workers across the country are on reduced pay because of the coronavirus lockdown.

The government's coronavirus job retention scheme means employers can claim for 80% of wages in order to keep staff employed.

Union leaders said the increase was well deserved as many key workers such as carers and agricultural and shop workers are on minimum wage rates.

"Britain is indebted to its army of minimum wage heroes," said TUC General Secretary Frances O'Grady.

"Many - including care workers and supermarket staff - are currently on the frontline of the battle against coronavirus. They deserve every penny of this increase, and more."

The national living wage is the government-mandated minimum wage for people 25 and over. The minimum wage for under-25s will also rise.

From Wednesday, the new rates are:

• The National Living Wage for ages 25 and above - up 6.2% to £8.72
• The National Minimum Wage for 21 to 24-year-olds - up 6.5% to £8.20
• For 18 to 20-year-olds - up 4.9% to £6.45
• For under-18s - up 4.6% to £4.55
• For apprentices - up 6.4% to £4.15

Employers often worry that a higher minimum wage will lead to more unemployment as they will be forced to lay off workers in order to afford the increases.

But an independent report published last year said there has been little or no evidence of job losses as a result of rising minimum wage levels.

"Employment costs have surged in recent years and are cited as the number one cause of rising outgoings among small employers," said Mike Cherry, national chairman for the Federation of Small Businesses.

But he said a policy to reduce the National Insurance contributions that firms are required to pay, which was announced in the Budget, will help small businesses foot the bill for the wage increase.

That policy is one of a raft of changes to come into force on Wednesday.

Is life getting more expensive?

Spring often brings major price hikes but the picture is more complicated this year - and some of the changes are dwarfed by the impact of the coronavirus on many household incomes.

Council tax will be typically be around 4% higher, prescriptions are up 20p to £9 - that's England only - and the TV licence is £3 more expensive at £157.50.

The big mobile phone providers are pushing up their rates by more than 2% and BT broadband is more expensive too.

But water bills in England and Wales are being cut by 4% on average and the cap on the average standard rate energy bill is being brought down to £1,162 from Wednesday, a drop of £17.

The oil price has fallen sharply, which means energy bills may come down more. So could the cost of filling up the car.