Powell Testifies as Focus on Economic Pain Persists: Live Updates

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Jerome H. Powell, the chair of the Federal Reserve, told lawmakers that the economic rebound from the pandemic recession had further to go and reiterated that the central bank planned to keep up its growth-stoking policies, which include rock-bottom interest rates and large-scale bond buying.

“The economic recovery remains uneven and far from complete, and the path ahead is highly uncertain,” Mr. Powell said in prepared remarks he delivered to the Senate Banking Committee on Tuesday. “Although there has been much progress in the labor market since the spring, millions of Americans remain out of work.”

Unemployment has come down sharply after surging last year, but the official jobless rate remains at nearly double its February 2020 level and probably understates the extent of weakness in the labor market. Likewise, consumer spending has bounced back but the service sector remains subdued.

The Fed slashed interest rates to near-zero last March and is buying about $120 billion in government-backed bonds each month, policies aimed at fueling lending and spending. Congress and the White House have also provided support in the form of enormous spending packages, and Democrats are now pushing for another $1.9 trillion in relief for workers and businesses.

Some economists have warned that inflation could take off as vaccines allow consumer activity to pick up and as the government pumps money into the economy, but Fed officials have generally played down those concerns. Mr. Powell said on Tuesday that inflation dynamics generally do not “change on a dime” and that if unwanted price pressures arise, the Fed has the tools to push back on them.

For now, “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,” Mr. Powell said, reiterating a pledge to keep up buying bonds at the current pace until “substantial further progress” has been made.

Senator Patrick J. Toomey, Republican of Pennsylvania, asked whether the Fed’s policies might be fueling higher asset prices. Mr. Powell acknowledged that there was a “link” but said “many factors” were contributing.

And Mr. Toomey pressed Mr. Powell on what would happen to the Fed’s bond-buying plans if inflation moved up before full employment was achieved, prompting Mr. Powell to reiterate that the Fed was looking for more progress before dialing back purchases.

Mr. Powell said at one point that he would avoid weighing in on fiscal policy — a comment he made not long after Mr. Toomey said the central bank should avoid moving beyond its narrow economic mandate and into areas like racial inequity and climate change. The Fed is politically independent and tends to avoid partisan issues, though it has been providing advice to policymakers in Congress and weighing in on socioeconomic disparities over the past year.

“I, today, will really stay away from fiscal policy,” Mr. Powell said when asked specifically about the gender gap in the labor market. “There is still a long way to go to full recovery, and we intend to keep our policy supportive of that recovery.”

After it rocketed higher last year, the United States’ official unemployment rate has fallen to 6.3 percent. But top economic officials are increasingly citing a different figure, one that puts the jobless rate at a far higher 10 percent.

The higher figure includes people who have stopped looking for work, and the disparity between the official rate and the expanded statistic underlines the unusual nature of the pandemic shock and reinforces the idea that the economy remains far from a full recovery.

The reality that labor market weakness lingers, a year into the pandemic, could come up again as Jerome H. Powell, the Federal Reserve chair, testifies before Congress starting on Tuesday. Mr. Powell is speaking before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday.

The Bureau of Labor Statistics tallies how many Americans are looking for work or are on temporary layoff midway through each month. That number, taken as a share of the civilian labor force, is reported as the official unemployment rate.

But economists have long worried that by relying on the headline rate, they ignore people they shouldn’t, including would-be employees who are not actively applying for jobs because they are discouraged or because they are waiting for the right opportunity.

Now, key policymakers are all but ditching the headline statistic, rather than just playing down its comprehensiveness. In an alternate unemployment figure, they’re adding back people who have left the job market since last February, along with those who are misclassified in the official report.

“We have an unemployment rate that, if properly measured in some sense, is really close to 10 percent,” Treasury Secretary Janet L. Yellen said on CNBC last week. And a week earlier, Mr. Powell cited a similar figure in a speech about lingering labor market damage.

“Published unemployment rates during Covid have dramatically understated the deterioration in the labor market,” Mr. Powell said recently. People dropped out of jobs rapidly when the economy closed, and with many restaurants, bars and hotels shut, there is nowhere for many workers who are trained in service work to apply.

The S&P 500 was set for another day of losses on Tuesday, following European stock markets lower. Tech stocks have suffered some of the heaviest losses in recent selling, which continued on Tuesday.

Stocks have dropped recently as a rise in U.S. inflation expectations and bond yields has raised concerns that the Federal Reserve will tighten its monetary policy sooner than expected, upending the easy-money policies that have helped bolster stocks during the pandemic.

The central bank’s policymakers have said they would look past a short-term rise inflation and keep supporting the economy, but investors will be listening for more details as Jerome H. Powell, the central bank chair, testifies before the Senate Banking Committee on Tuesday and the House of Representatives on Wednesday.

Stocks

• The S&P 500 fell 0.7 percent on Tuesday. The technology-heavy Nasdaq composite fell more than 2 percent.

• Tesla shares dropped nearly 9 percent, after falling about 9 percent on Monday as Bitcoin prices also tumbled. Over the weekend, Elon Musk tweeted that prices of Bitcoin and Ether, the two largest cryptocurrencies, “do seem high.” A few weeks ago, the electric carmaker said it bought $1.5 billion in Bitcoin, sending prices of both soaring.

Europe

• The Stoxx 600 Europe fell 0.7 percent, with tech stocks dropping the most.

• The unemployment rate in Britain rose to 5.1 percent for the three months ending in December, 1.4 percentage points higher than it was a year earlier, official statistics showed on Tuesday. Job losses have fallen particularly hard on young people: The number of employees on company payrolls has declined by 726,000 in the past year, nearly three-fifths of these workers were under 25.

• HSBC shares fell 1.8 percent in London after Europe’s largest bank said its pretax profit dropped 34 percent last year. It also announced plans to increase investments in Asia as it was “moving the heart of the business” there, including relocating some senior executives. The bank also said it would start paying dividends again.

Macy’s, the department store company that also owns Bloomingdale’s and Bluemercury, said on Tuesday that its net sales in 2020 tumbled 29 percent to $17.3 billion, highlighting the toll that the pandemic has taken on mall chains and apparel stores.

The retailer swung to a net loss of $3.9 billion for the year that ended Jan. 31, from a $564 million profit the prior year. But the company said it “anticipates 2021 as a recovery and rebuilding year,” with momentum building in the second half, particularly after a better than expected fourth quarter and holiday selling season, which was profitable even as sales dropped by 19 percent from the same period a year earlier.

With more than 700 stores, Macy’s is often viewed as a barometer for the health of department stores, malls and American consumers. On Tuesday, executives emphasized that Macy’s was building out its digital business, which it expects to reach $10 billion in sales in the next three years, moving out of lower-performing American malls and expanding its off-price chains like Macy’s Backstage, which aims to compete with T.J. Maxx and Nordstrom Rack. It is also testing stores away from malls.

Although the company’s sales have jumped in areas like home, luxury skin care and fragrances, “all of apparel remains challenged,” Jeff Gennette, Macy’s chief executive, said on an earnings call on Tuesday. “While we are doing well in the casual categories, the dress categories remain depressed.”

Mr. Gennette said that Macy’s had a “ramp-up” strategy with vendors to lean into new inventory, if the company sees signs of improvement as vaccinations start to scale and customers start booking events like weddings again.

Even before the pandemic hit, Macy’s was under strain. Last February, the company, which is based in New York, said that it planned to close about 125 of its least productive stores over three years and cut about 2,000 corporate and support function positions. Sales in 2019 had fallen to $24.6 billion from $25 billion a year earlier, and the company’s declining stock led to its removal from the S&P 500 last year.

Many consumers stayed away from malls and department stores in the past year and bought far less apparel in a newly isolated world. Macy’s place in American culture also took a hit, as the outbreak reduced its annual fireworks display and Thanksgiving Day parade in New York.

Less than a year after the pandemic thwarted an effort to sell Victoria’s Secret to the investment firm Sycamore Partners, the lingerie chain’s owner, L Brands, will again test private equity’s appetite for the business, according to the DealBook newsletter.

L Brands’ bankers at Goldman Sachs will begin formally pitching buyout firms about a potential takeover as soon as this week. L Brands said this month that it was weighing a sale or spinoff of Victoria’s Secret by August, as it focuses on its faster-growing Bath & Body Works division.

Victoria’s Secret had “substantially increased its valuation” and that L Brands was still evaluating all options for the business, Stuart Burgdoerfer, the chief financial officer of L Brands, said in a statement.

Victoria’s Secret has embarked on a turnaround effort since the Sycamore sale collapsed. A priority has been overhauling its brand, as younger customers shunned its overtly sexy products for alternatives focused on comfort and criticized its marketing as exclusionary.

Victoria’s Secret has overhauled its marketing, introducing a campaign last year that featured transgender, plus-size and older models. It is bringing back its much beloved swimwear brands to select stores.

The company has also changed up its management after former top executives were accused of misogyny and sexual harassment. New hires have included Martha Pease as chief marketing officer and Patti Cazzato as head of merchandising.

The lingerie market is in demand. A recent investment valued Rihanna’s Savage x Fenty brand at $1 billion, for example. For prospective buyers, Victoria’s Secret remains a well-known label with a sizable market share.

Still, potential acquirers may have one lingering concern: the continuing investigations and shareholder lawsuits about the ties between L Brands’ chairman, Les Wexner, and Jeffrey Epstein.

Sapna Maheshwari contributed reporting.

On the second day of the DealBook DC Policy Project, we will hear from more policymakers and business leaders about the challenges for the coronavirus vaccine rollout, the future of financial regulation and the outlook for bipartisanship in polarized times.

Here is the lineup (all times Eastern):

12:30 P.M. – 1 P.M.

Karen Lynch of CVS Health on the vaccine rollout

Karen Lynch took over CVS Health this month as the pharmacy chain takes center stage in efforts to fight the pandemic. It is working with the government to distribute the coronavirus vaccine in its stores, as well as in nursing homes and assisted-living facilities. To aid in those efforts, the company hired 15,000 employees at the end of last year, staffing up to deal with what President Biden has called “gigantic” logistical hurdles to the vaccine rollout.

2:30 P.M. – 3 P.M.

Vlad Tenev of Robinhood and Jay Clayton, former S.E.C. chairman, on the markets

At the center of the recent meme-stock frenzy was the online brokerage firm Robinhood, which has attracted millions of users with commission-free trades but drew outrage among its users when it halted trading in GameStop and other stocks at the height of the mania.

Vlad Tenev, Robinhood’s chief executive, is fresh from facing hours of hostile questioning at a congressional hearing last week about his company’s business practices. Joining him to discuss what regulators should now do — if anything — is Jay Clayton, the veteran Wall Street lawyer who led the Securities and Exchange Commission during the Trump administration. From the beginning of his tenure, Mr. Clayton said that his mission was protecting “the long-term interests of the Main Street investor.”

5:30 P.M. – 6 P.M.

Senator Mitt Romney on finding common ground

Senator Mitt Romney, Republican of Utah, crossed party lines to vote to convict President Donald J. Trump on articles of impeachment, twice. He is also drafting a bill with Senator Tom Cotton, Republican of Arkansas, that would raise the minimum wage while forbidding businesses to hire undocumented immigrants. This is typical of Mr. Romney’s approach, speaking to concerns on both sides of the aisle in an era of stark partisan divisions.

HSBC is deepening its focus on Asia as it looks to unload some of its troubled Western operations, the bank said on Tuesday.

Noel Quinn, the chief executive, said the bank would invest $6 billion to expand its wealth management and wholesale banking business in Hong Kong, China and Singapore over the next five years. He also said he was considering relocating some of the bank’s top executives to Hong Kong because it would be “important to be closer to growth opportunities.”

Underscoring the turn toward Asia, the bank, which is based in London, also said it was considering the sale of its U.S. retail banking network and was in talks with potential buyers for its French consumer banking unit.

HSBC, which derives more than half of its revenue from China, has come under increasing political pressure from China and Britain over its business operations in Hong Kong, the former British colony. Pro-Beijing lawmakers in the city have publicly pressured it to embrace the Communist Party’s firmer grip on Hong Kong. When some executives have pledged support to Beijing, British members of Parliament have hammered the bank.

The political focus on HSBC is unlikely to ease and any future public statement about plans to move top executives to Hong Kong could prompt further criticism from British lawmakers.

“We haven’t firmed up our plans yet,” Mr. Quinn said on a call with reporters. “But the majority of executives will remain in London.”

HSBC, which reported its profit before tax in 2020 fell by 34 percent to $8.8 billion compared with a year earlier, blamed the pandemic for its financial performance.

The company that makes the aluminum cans used by LaCroix, White Claw and other beverage giants is spinning off that business in a deal that values the new company at $8.5 billion, the company announced Tuesday.

The deal by the Ardagh Group, which is based in Luxembourg, would be in the form of a merger with a special-purpose acquisition vehicle, or SPAC, backed by an affiliate of the Gores Group, a private equity firm based in California.

It is a bet on the continued growth of the can business, as companies increasingly weigh the environmental consequences of their products. Nestlé announced the sale of its water business for $4.3 billion this month, in part a move to shift away from water packaged in plastic. Aluminum cans are far easier to recycle than plastic bottles.

Ardagh will retain a roughly 80 percent stake in the company after the deal. Investors are contributing a $600 million private placement, while Gores is putting in $525 million in cash. The new company, Ardagh Metal Packaging, will issue $2.65 billion of new debt. Those proceeds will go to Ardagh.

The deal, involving an already-public company carving off a unit with the backing of a SPAC, is the latest twist on a SPAC transaction. The Gores Group’s experience in SPACs was part of its appeal to Ardagh as a buyer, said Ardagh’s chair, Paul Coulson.

The Gores SPAC, named Gores Holdings V, is the seventh such deal the group has done. “You don’t really want to be going to a surgeon and have him perform his first surgery,” Mr. Coulson said.

Ardagh generates more half its roughly $7 billion in annual sales from making cans for beverage companies. This past year, sales by the unit grew 2 percent, fueled by beverage sales and environmental awareness, while earnings before interest tax depreciation and amortization grew 8 percent. Ardagh will keep its glass packaging business.

For beverage companies, cans have become an increasingly important tool for branding, providing colorful and sleek packaging.

When Ardagh acquired its canning operation in 2016 for $3 billion, it did most of its business with legacy brands like large soda and beer companies. It has since worked with younger and faster-growing seltzer-based brands like White Claw, LaCroix and Truly Hard Seltzer to help charge its growth. To prepare for further expected expansion in the United States, it bought a factory in Huron, Ohio.

Globally, the company is considering growth in Europe and Brazil, where beer sales remain strong as consumers are increasingly shifting from tap to cans.

Nearly a month into the second run of the Paycheck Protection Program, $126 billion in emergency aid has been distributed by banks, which make the government-backed loans, to nearly 1.7 million small businesses.

But a thicket of errors and technology glitches has slowed the relief effort and vexed borrowers and lenders alike, Stacy Cowley reports for The New York Times.

Some are run-of-the-mill challenges magnified by the immense demand for loans, which has overwhelmed customer service representatives. But many stem from new data checks added by the Small Business Administration to combat fraud and eliminate unqualified applicants.

Instead of approving applications from banks immediately, the S.B.A. has held them for a day or two to verify some of the information. That has caused — or exposed — a cascade of problems. Formatting applications in ways that will pass the agency’s automated vetting has been a challenge for some lenders, and many have had to revise their technology systems almost daily to keep up with adjustments to the agency’s system. False red flags, which can require time-consuming human intervention to fix, remain a persistent problem.

Numerated, a technology company that processes loans for more than 100 lenders, still has around 10 percent of its applications snarled in error codes, down from a peak of more than 25 percent, said Dan O’Malley, the company’s chief executive.

Nearly 5 percent of the 5.2 million loans made last year had “anomalies,” the agency revealed last month, ranging from minor mistakes like typos to major ones like ineligibility. Even tiny mistakes can spiral into bureaucratic disasters.

Wally Adeyemo, President Biden’s nominee for deputy Treasury Secretary, plans to emphasize the importance of rebuilding the United States’ alliances to combat China’s unfair trade practices and halt foreign interference in the country’s democratic institutions at his confirmation hearing on Tuesday, according to a copy of his prepared remarks, which were reviewed by The New York Times.

His remarks highlight the importance that the Biden administration is placing on multilateralism as it seeks to undo many of the economic policies put in place by former President Donald J. Trump.

Mr. Adeyemo will tell members of the Senate Finance Committee that Treasury Secretary Janet L. Yellen has asked him to focus on national security matters at the department. If confirmed, he will be a pivotal player in the country’s economic diplomacy efforts.

“We must reclaim America’s credibility as a global leader, advocating for economic fairness and democratic values,” Mr. Adeyemo will say.

Mr. Adeyemo is expected to be introduced at the hearing by Senator Elizabeth Warren, the progressive Democrat from Massachusetts. Ms. Warren, who established the Consumer Financial Protection Bureau before joining the Senate, worked with Mr. Adeyemo, who served as her first chief of staff.

Mr. Adeyemo will discuss the nexus between economic and national security, arguing that “Made in America” policies will make the country more competitive around the world. If confirmed, he is expected to conduct a broad review of Treasury’s sanctions program, which the Trump administration used aggressively, but often haphazardly, against Iran, North Korea, Venezuela and other countries.

“Treasury’s tools must play a role in responding to authoritarian governments that seek to subvert our democratic institutions; combating unfair economic practices in China and elsewhere; and detecting and eliminating terrorist organizations that seek to do us harm,” Mr. Adeyemo, a former Obama administration official, will say.

Born in Nigeria, Mr. Adeyemo emigrated with his parents to the United States when he was a baby and settled in Southern California outside Los Angeles. At the hearing, he will also talk about his working-class upbringing and the need to ensure that low-income communities and communities of color, which have been hit hardest by the pandemic, receive relief.

Adam Neumann, the flamboyant co-founder of WeWork, and SoftBank, the Japanese conglomerate that rescued the co-working company in 2019, have in recent weeks made significant headway toward settling their drawn-out legal dispute, according to two people with knowledge of the matter. That battle has stalled SoftBank’s efforts to take WeWork public.

As part of its multibillion-dollar bailout of WeWork, SoftBank offered to pay $3 billion for stock owned by Mr. Neumann and other shareholders. Several months later, after the coronavirus pandemic had emptied WeWork’s locations, SoftBank withdrew the offer. Mr. Neumann then sued SoftBank for breach of contract.

SoftBank was already a big investor in WeWork when it withdrew plans for an initial public offering in 2019. Now, SoftBank has plans to combine WeWork with a publicly traded special-purpose acquisition company, a type of deal that has recently become a popular way of quickly bringing private companies public. The legal dispute between Mr. Neumann and SoftBank is a threat to such a deal because it leaves unresolved the question of how much control SoftBank has over WeWork.

The settlement talks, which were reported earlier by The Wall Street Journal, could still fall apart, the two people said. Under the terms being discussed, SoftBank would buy half the number of shares that it had originally agreed to, one of the people said. As a result, it would pay $1.5 billion, not $3 billion. Mr. Neumann would get nearly $500 million instead of almost $1 billion, but he would retain more of his shares.

Under Mr. Neumann, WeWork grew at a breakneck pace and was using up so much cash that it was close to bankruptcy before SoftBank stepped in. Under the management team SoftBank installed, WeWork has tried to cut costs by slowing its growth and negotiating deals with the landlords it rents space from.