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The Fed’s $4 Trillion Lifeline Never Materialized. Here’s Why.

WASHINGTON — As companies furloughed millions of workers and stock prices plunged through late March, Treasury Secretary Steven Mnuchin offered a glimmer of hope: The government was about to step in with a $4 trillion bazooka.

The scope of that promise hinged on the Federal Reserve. The relief package winding through Congress at the time included a $454 billion pot of money earmarked for the Treasury to back Fed loan programs. Every one of those dollars could, in theory, be turned into as much as $10 in loans. Emergency powers would allow the central bank to create the money for lending; it just required that the Treasury insure against losses.

It was a shock-and-awe moment when lawmakers gave the package a thumbs up. Yet in the months since, the planned punch has not materialized.

The Treasury has allocated $195 billion to back Fed lending programs, less than half of the allotted sum. The programs supported by that insurance have made just $20 billion in loans, far less than the suggested trillions.

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The programs have partly fallen victim to their own success: Markets calmed as the Fed vowed to intervene, making the facilities less necessary as credit began to flow again. They have also been undercut by Mr. Mnuchin’s fear of taking credit losses, limiting the risk the government was willing to take and excluding some would-be borrowers. And they have been restrained by reticence at the central bank, which has extended its authorities into new markets, including some — like midsize business lending — that its powers are poorly designed to serve. The Fed has pushed the boundaries on its traditional role as a lender of last resort, but not far enough to hand out the sort of loans some in Congress had envisioned.

Lawmakers, President Trump and administration officials are now clamoring to repurpose the unused funds, an effort that has taken on more urgency as the economic recovery slows and the chances of another fiscal package remain unclear. The various programs are set to expire on Dec. 31 unless Mr. Mnuchin and Jerome H. Powell, the Fed chair, extend them.

Here’s how that $454 billion failed to turn into $4 trillion, and why the Fed and Treasury are under pressure to do more with the money.

The Fed can lend to private entities to keep markets functioning in times of stress, and in the early days of the crisis it rolled out a far-reaching set of programs meant to soothe panicked investors.

But the Fed’s vast power comes with strings attached. Treasury must approve of any lending programs it wants to set up. The programs must lend to solvent entities and be broad-based, rather than targeting one or two individual firms. If the borrowers are risky, the Fed requires insurance from either the private sector or the Treasury Department.

Early in the crisis, the Treasury used existing money to back market-focused stabilization programs. But that funding source was finite, and as Mr. Mnuchin negotiated with Congress, he pushed for money to back a broader spate of Fed lending efforts.

The central bank itself made a major announcement on March 23, as the package was being negotiated. It said it was making plans to funnel money into a wide array of desperate hands, not just into Wall Street’s plumbing. Officials would set up an effort to lend to small and medium-size businesses, the Fed said, and another that would keep corporate bonds flowing. It would go on to expand that program to include some recently downgraded bonds, so-called fallen angels, and to add a bond-buying program for state and local governments.

Congress allocated $454 billion in support of the programs as part of the economic relief package signed into law on March 27. When the Congressional Budget Office estimated the budget effects of that funding, it did not count the cost toward the federal deficit, since borrowers would repay on the Fed’s loans, and fees and earnings should offset losses.

Mr. Mnuchin and congressional leaders did not settle on that sum for a very precise economic reason, a senior Treasury official said, but they knew conditions were bad and wanted to go big.

Overdoing it would cost nothing, and the size of the pot allowed Mr. Mnuchin to say that the partners could pump “up to $4 trillion” into the economy.

It was like nuclear deterrence for financial markets: Promise that the government had enough liquidity-blasting superpower to conquer any threat, and people would stop running for safer places to put their money. Crisis averted, there would be no need to actually use the ammunition.

Still, the huge dollar figure stoked hopes among lawmakers and would-be loan recipients — ones that have been disappointed.

Key markets began to mend themselves as soon as the Fed promised to step in as a backstop. Companies and local governments have been able to raise funds by selling debt to private investors at low rates.

Corporate bond issuance had ground to a standstill before the Fed stepped in, but companies have raised $1.5 trillion since it did, Daleep Singh, an official at the New York Fed, said on Tuesday. That is double the pace last year. The companies raising money are major employers and producers, and if they lacked access to credit it would spell trouble for the economy.

While self-induced obsolescence partly explains why the programs have not been used, it’s not the whole story. The Main Street program, the one meant to make loans to midsize businesses, is expected to see muted use even if conditions deteriorate again. In the program that buys state and local debt, rates are high and payback periods are shorter than many had hoped.

Continued lobbying suggests that if the programs were shaped differently, more companies and governments might use them.

The relatively conservative design owes to risk aversion on Mr. Mnuchin’s part: He was initially hesitant to take any losses and has remained cautious. They also trace to the Fed’s identity as a lender of last resort.

Walter Bagehot, a 19th-century British journalist who wrote the closest thing the Fed has to a Bible, said central banks should lend freely at a penalty rate and against good collateral during times of crisis.

In short: Step in when you must, but don’t replace the private sector or gamble on lost causes.

That dictum is baked into the Fed’s legal authority. The law that allows it to make emergency loans instructs officials to ensure that borrowers are “unable to secure adequate credit accommodations from other banking institutions.” The Fed specified in its own regulation that loan facilities should charge more than the market does in normal conditions — it wants to be a last-ditch option, not one borrowers would tap first.

The Fed has stretched its “last resort” boundaries. The Main Street program works through banks to make loans, so it is more of a credit-providing partnership than a pure market backstop, for instance.

Yet Bagehot’s dictum still informs the Fed’s efforts, which is especially easy to see in the municipal program. State finance groups and some politicians have been pushing the central bank to offer better conditions than are available in the market — which now has very low rates — to help governments borrow money for next to nothing in times of need.

The Fed and Treasury have resisted, arguing that the program has achieved its goal by helping the market to work.

Congress is not uniformly on board with wanting a more aggressive Fed that might become a first option for credit. Senator Patrick J. Toomey of Pennsylvania, a Republican on the committee that oversees the central bank, has repeatedly underlined that the Fed is a backstop.

And replacing private creditors during times of crisis would put central bankers — who are neither elected nor especially accountable — in the position of picking economic winners and losers, a role that worries the Fed.

Such choices are inherently political and polarizing. Already, many of the same people who criticize stringency in the state and local programs regularly argue that the programs intended to help companies should have come with more strings attached.

And it could become a slippery slope. If the Fed shoulders more responsibility for saving private and smaller public entities, Congress might punt problems toward the central bank before solving them democratically down the road.

“It’s opening Pandora’s box,” said David Beckworth, a senior research fellow at the Mercatus Center at George Mason University.

Being too careful could also carry an economic risk if it meant that the Fed failed to provide help where needed. The midsize business segment, which employs millions of people, has had few pandemic relief options. Struggling states and cities are also huge employers.

Yet those entities may be past the point of needing debt — all the Fed can offer — and require grants instead. And it is worth noting that just because the Fed and Treasury are not rewriting their programs to support broader use now does not mean the Fed would stand back if conditions were to worsen.

If that happens, “it’s going to stop pointing to the fact that it has a fire hose,” said Peter Conti-Brown, a Fed historian at the University of Pennsylvania. “It’s going to take it out and turn it on.”

Alan Rappeport contributed reporting.

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Wait, Wall Street Is Pro-Biden Now?

The suspense surrounding the next round of fiscal stimulus — will there or won’t there be a deal — has whipsawed markets this week. Investors first pushed stocks up on news of progress between Congress and the White House, only to pull back on Tuesday when President Trump said on Twitter that there would be no fresh stimulus. Mr. Trump then backtracked, demanding that Congress pass a relief bill, pushing the market up again.

But beneath the volatility, which reflects investors’ reaction to short-term developments, a subtle shift is occurring on Wall Street. Investors and analysts have begun to take into account the possibility that Mr. Trump’s time in the White House may soon be over, as Democratic presidential candidate Joseph R. Biden Jr. continues to pull ahead in polls just weeks before the election.

And that is producing some optimism on Wall Street, because many investors believe that the higher Mr. Biden climbs in polls, the lower the chance of a contested presidential election. An election with no clear winner and the fading prospects of another round of stimulus are two of the biggest threats to market stability.

Mr. Trump’s chaotic behavior in the first presidential debate, and his diagnosis of Covid-19 just days later, have been followed by polls showing Mr. Biden rising in several key swing states. On Wednesday, a new Quinnipiac University poll found that, among likely voters in the swing states of Florida and Pennsylvania, Mr. Biden had widened his lead over the president to 11 percentage points and 13 percentage points.

Also on Wednesday, the S&P 500 closed up 1.7 percent. The index has risen 2.5 percent since the first debate on Sept. 29. The market moves aren’t huge, but analysts say they are meaningful reflections of investors’ thinking at this point.

The outcome of the first debate increased “the odds of first Joe Biden becoming president, but also in line with the Democrats also taking the Senate,” said Shahab Jalinoos, global head of macro strategy with Credit Suisse in New York. “That’s obviously been a tailwind for markets since.”

Unified Democratic control in Washington is not usually high on Wall Street’s wish list, as it is associated with increased regulation and taxes. And some investors continue to have mixed feelings about a potential Biden agenda, which calls for higher taxes on corporations and the wealthy.

But largely, investors are of the view that a “blue wave” victory — in which Democrats retain the House of Representatives and retake the Senate as well as the presidency — represents the best chance to get another large injection of federal money into an economy that continues to struggle. Economists and policymakers, including the Federal Reserve chair, Jerome H. Powell, say such assistance is sorely needed, as job growth stalls, layoffs mount and temporary furloughs turn into permanent cuts.

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Credit…John Taggart for The New York Times

To tease out the underlying views of investors, analysts at JPMorgan Chase & Company recently assembled baskets of shares in companies they see as potential winners or likely losers in the event of a Biden victory.

Stocks of companies in the “winners” basket included industries such as health care, renewable energy, infrastructure and companies likely to benefit from better trade relations with China. Such companies could benefit from Mr. Biden’s support for the Affordable Care Act, which has funneled significant amounts of federal dollars into the health care industry. Infrastructure, engineering and renewable energy companies could also benefit from a major stimulus push, aimed in part at countering climate change.

Potential “losers” included companies with large numbers of minimum wage workers, defense contractors and energy companies, among others. Mr. Biden’s agenda calls for raising the minimum wage to $15 an hour, and weapons makers have been beneficiaries of the Trump administration’s focus on increasing sales of American weapons overseas.

Since early September, “the Democrat Agenda Outperformers have gained 10 percent relative to the Underperformers baskets, suggesting the U.S. equity markets have been pricing in a higher probability of a Biden Presidency,” the JPMorgan analysts wrote in a research note published last week.

In the government bond market, yields on long-term Treasury bonds — which have been languishing at some of the lowest levels on record — have moved sharply higher over the last week. That suggests some are pricing a combination of faster economic growth, higher inflation and rising government deficits over the future. (Treasury bond prices tend to fall during periods of fast economic growth, pushing yields — which move in the opposite direction — higher.)

For one, a clear victory for Mr. Biden cuts down on the chance of a contentious period after the Nov. 3 election that extends political uncertainty into the foreseeable future. In recent weeks, the possibility of a contested election — or even an outright constitutional crisis — was being priced into markets as Mr. Trump repeatedly refused to commit to a peaceful transfer of power.

The statements pushed jittery investors to cut back on their stock market risk over the last month. Starting in early September, the S&P fell for four consecutive weeks, coming close to dropping 10 percent. The likelier Mr. Biden is to notch a conclusive victory, the greater the amount of risk of political uncertainty that investors can take off the table.

“The cleaner the win, then the less likely that there is a disputed election,” said Mr. Jalinoos, of Credit Suisse. “Once you downgrade that risk, it tends to be a market positive.”

In recent days, Wall Street analysts have written that the likely large flood of federal stimulus that would follow a “blue wave” could cushion the blow of higher taxes by helping to increase economic growth more than previously expected.

“It would sharply raise the probability of a fiscal stimulus package of at least $2 trillion shortly after the presidential inauguration on Jan. 20, followed by longer-term spending increases on infrastructure, climate, health care and education that would at least match the likely longer-term tax increases on corporations and upper-income earners,” wrote analysts at Goldman Sachs this week.

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House Lawmakers Condemn Big Tech’s ‘Monopoly Power’ and Urge Their Breakups

WASHINGTON — House lawmakers who spent the last 16 months investigating the practices of the world’s largest technology companies said on Tuesday that Amazon, Apple, Facebook and Google had exercised and abused their monopoly power and called for the most sweeping changes to antitrust laws in half a century.

In a 449-page report that was presented by the House Judiciary Committee’s Democratic leadership, lawmakers said the four companies had turned from “scrappy” start-ups into “the kinds of monopolies we last saw in the era of oil barons and railroad tycoons.” The lawmakers said the companies had abused their dominant positions, setting and often dictating prices and rules for commerce, search, advertising, social networking and publishing.

To amend the inequities, the lawmakers recommended restoring competition by effectively breaking up the companies, emboldening the agencies that police market concentration and throwing up hurdles for the companies to acquire start-ups. They also proposed reforming antitrust laws, in the biggest potential shift since the Hart-Scott-Rodino Act of 1976 created stronger reviews of big mergers.

“Our investigation leaves no doubt that there is a clear and compelling need for Congress and the antitrust enforcement agencies to take action that restores competition, improves innovation and safeguards our democracy,” Jerrold Nadler, Democrat of New York and chairman of the judiciary committee, and David Cicilline, Democrat of Rhode Island and chairman of the antitrust subcommittee, said in a joint statement.

The House report is the most significant government effort to check the world’s largest tech companies since the government sued Microsoft for antitrust violations in the 1990s. It offers lawmakers a deeply researched road map for turning criticism of Silicon Valley’s influence into concrete actions.

The report is also expected to kick off other actions against the tech giants. The Justice Department has been working to file an antitrust complaint against Google, followed by separate suits against the search giant from state attorneys general. Antitrust investigations of Amazon, Apple and Facebook are also underway at the Justice Department, the Federal Trade Commission and four dozen state attorneys general.

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But the House antitrust subcommittee split along party lines on how to remedy and corral the power of the tech companies, pointing to an uphill battle for Congress to curtail them.

Democrats proposed legal changes that could substantially restructure Facebook, Google, Amazon and Apple. They said Congress should consider making it illegal for the tech giants to provide preferential treatment to their own products, as Google does in search results. They suggested breaking up the companies in “structural separations” and forbidding them from operating in similar businesses to those they were already dominant in. They also recommended adding to antitrust laws, including clearer rules that could block the tech giants’ attempts to buy other companies.

Some Republicans agreed with proposals to bolster funding for antitrust enforcement agencies, but balked at calls for Congress to intervene in restructuring the companies and their business models. Others have refused to endorse any of the Democrats’ findings.

Rep. Jim Jordan of Ohio, the top Republican on the committee, said that the report was “partisan” and that the committee had not tackled conservatives’ anecdotal allegations that the online platforms were biased against their views. In a letter to Mr. Nadler, Mr. Jordan said that ignoring the topic “ultimately discredits the draft report’s findings.”

Rep. Ken Buck, a Republican of Colorado, joined three other Republican lawmakers in releasing a separate report in recent days — titled “The Third Way” — outlining their mixed reception of the Democrats’ proposals.

“I agree with about 330 pages of the majority’s report,” Mr. Buck said. But he said he could not agree with recommendations to embolden consumer lawsuits and the breakup of companies, calling them “the nuclear option.”

The House Judiciary Committee began its investigation into the four tech giants in June 2019, interviewing hundreds of rivals and business clients of the platforms. In July, the tech chief executives — Jeff Bezos of Amazon, Tim Cook of Apple, Mark Zuckerberg of Facebook and Sundar Pichai of Google — testified in a hearing to defend their companies.

The four companies, which have a combined market value of more than $5 trillion, largely operate in different digital businesses. But the report revealed monopoly abuses across them.

Amazon, Apple, Facebook and Google had roles as “gatekeepers” in common and controlled prices and the distribution of goods and services, the report said. That made third-party businesses — like app developers on Apple’s App Store and sellers on Amazon’s marketplace — beholden to the companies’ demands, the report said. The word monopoly appeared in the report nearly 120 times.

“With no restrictions of tech companies to own and compete on their own platforms, which are the only options for so many small businesses, it takes away any real sense of competition,” said Rep. Pramila Jayapal, a Democrat of Washington, who has been a vocal critic of Amazon.

Even without full bipartisan support, the report sets important groundwork, said Gene Kimmelman, a former senior antitrust official at the Justice Department. He said the breakup of AT&T in the 1980s was supported by policies set forth by Congress. Tuesday’s report, he said, was “the foundation for legislation and regulation that enables antitrust cases against Google, Facebook and others to actually break markets open to more competition.”

Google disputed the findings and said its free service had been a boon to consumers. “Google’s free products like Search, Maps and Gmail help millions of Americans,” the company said in a statement, “and we’ve invested billions of dollars in research and development to build and improve them. We compete fairly in a fast-moving and highly competitive industry.”

Amazon said the committee’s recommendations could end up harming small businesses and consumers.

“The flawed thinking would have the primary effect of forcing millions of independent retailers out of online stores, thereby depriving these small businesses of one of the fastest and most profitable ways available to reach customers,” Amazon said in a blog post. “Far from enhancing competition, these uninformed notions would instead reduce it.”

Apple “vehemently disagrees with the conclusions in this staff report,” the company said in a statement. “The App Store has enabled new markets, new services and new products that were unimaginable a dozen years ago, and developers have been primary beneficiaries of this ecosystem,” the company said.

Facebook disagreed that its mergers with Instagram and WhatsApp were anticompetitive. “We compete with a wide variety of services with millions, even billions, of people using them,” the company said in a statement. “Acquisitions are part of every industry, and just one way we innovate new technologies to deliver more value to people.”

The report devoted most attention to Google and Amazon, then Apple and Facebook, based on the number of pages devoted to them.

Google holds a monopoly in search and search advertising, the report said. The company used anti-competitive tactics, such as adding information without permission from third-party providers like Yelp, to improve the quality of features within its search results, lawmakers added.

Amazon’s market power was spread across several industries, the report found. The committee focused on the company’s conduct in online commerce, where it sells products that compete with independent merchants who use its platform. The report said Amazon promoted its own smart-home products ahead of those of other makers, and also dealt unfairly with open source software developers in its cloud computing business.

In total, about 2.3 million third-party sellers do business on the Amazon marketplace worldwide, the report said, and 37 percent of them relied on the site as their sole source of income — essentially making them hostage to Amazon’s shifting tactics.

The lawmakers also concluded that Apple had a monopoly on the apps marketplace for iPhones and iPads, forcing all developers to go through it to reach users of those devices. That setup has enabled Apple to take a 30 percent cut of many apps’ sales. That fee, the subcommittee found, has led to higher prices for consumers.

Facebook’s monopoly power over social networking was also “firmly entrenched,” the report said. The company had taken steps, like acquiring new competitors or copying their features, to maintain that power, the lawmakers found. In particular, they said, after Facebook acquired the photo-sharing site Instagram in 2012, the social network’s executives had gone to great lengths to stop the service from overtaking its main product.

“It was collusion, but within an internal monopoly,” a former high-level Instagram employee told the committee during its investigation. “If you own two social media utilities, they should not be allowed to shore each other up. It’s unclear to me why this should not be illegal.”

Reporting was contributed by Daisuke Wakabayashi, Mike Isaac, Jack Nicas and Steve Lohr.

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How to Cover a Sick Old Man

When John Bresnahan was starting out as a reporter in the mid-1990s, he approached Senator Strom Thurmond of South Carolina, who had run for president in 1948 as a segregationist and was still shuffling through the Capitol. Senator Thurmond, born in 1902, gave no indication that he’d understood Mr. Bresnahan’s question and responded with a non sequitur.

The young reporter saw his older colleagues shaking their heads and snickering. The kid had expected the elderly senator to be able to carry on a conversation! They didn’t report on Senator Thurmond’s infirmity — that wasn’t how things were done — but they all knew about it.

These days, Mr. Bresnahan is the congressional bureau chief for Politico. A Navy veteran with the demeanor of a guy you’ve dragged out of a dive bar in the eighth inning of the Yankees game, he has become Capitol Hill’s grim reaper, a rare reporter with the stomach to print some obvious truths: that some top lawmakers aren’t all there.

In 2017, Mr. Bresnahan and his colleague Anna Palmer wrote that the powerful Republican chairman of the Senate’s appropriations committee, Thad Cochran, was “frail and disoriented,” a story that sped his retirement. Last month, Mr. Bresnahan and Marianne LeVine reported that fellow Democrats were worried whether Dianne Feinstein was up to leading her side of the Amy Coney Barrett confirmation hearings because she gets “confused by reporters’ questions, or will offer different answers to the same question depending on where or when she’s asked.”

This kind of reporting is impolite. It’s also totally obvious, and a natural feature of America’s recent slide toward gerontocracy. On Capitol Hill, everyone “knows this stuff,” Mr. Bresnahan said. “I just am the one to write it.”

I was thinking of Mr. Bresnahan as I watched reporters arrayed at Walter Reed military hospital on Sunday facing yet another moment of crisis for the news media, one even more basic than many of the hard challenges of the Trump era. The White House press corps is trying to perform a fundamental job of journalism — delivering simple facts about President Trump’s condition — in the face of Mr. Trump’s years of casual fabrication and his doctors’ clumsy evasions and contradictions. They’re covering the biggest policy failure of his administration in the most literal sense imaginable.

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Credit…Doug Mills/The New York Times

And yet they’re also doing something obviously uncomfortable. It’s hard not to feel some human revulsion for the sight of healthy, TV-ready young journalists braying for the vital signs of a sick old man. But there is no question that this prying is in the urgent public interest, and the White House press corps is working with admirable aggression and openness. We need to know who is in charge of the government, and to understand the outcome of President Trump’s long evasion of the coronavirus crisis as Americans begin to vote.

By refusing to speak honestly about basic facts, the White House is really “annihilating the press’s role,” said Elizabeth Drew, a former New Yorker Washington correspondent who covered President Ronald Reagan’s shooting in 1981 and his staff’s success at playing down the grave risk to his life.

Physical decline is likely to be a major feature of the next few years of American politics, at least. The current line of succession, after Mr. Trump and Vice President Mike Pence, features Speaker Nancy Pelosi, who is 80, and the Senate president pro tempore, Charles Grassley, 87, who also runs the Senate Finance Committee. Ms. Pelosi’s two most powerful deputies in the House, James Clyburn and Steny Hoyer, are both 80 or older. Over in the Senate, the chairman of the Armed Services Committee is 85 and coasting to re-election. The chairman of the Appropriations Committee is 86. Joe Biden, who turns 78 next month, is nearly a year younger than the Senate majority leader, Mitch McConnell, who is also seeking re-election in November.

This concentration of power in the hands of the old is an American phenomenon, Derek Thompson recently wrote in The Atlantic, noting that our leaders are getting older as European leaders get younger.

When politicians won’t share honest results, health experts’ long-range diagnoses should be treated as news. The whispers by reporters and lawmakers’ aides about feeling as if they work in a nursing home should find their way onto the record. And the most powerful people in the country should learn from Mr. Trump’s disastrous example that if you lie consistently about your health, nobody will believe you in a crisis.

None of this comes easily.

“Reporters are human beings and we cover these people,” Mr. Bresnahan told me. “You have respect for who the person was. It’s difficult.”

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As the Election Looms, Investors See Uncertainty. They Don’t Like It.

As the Election Looms, Investors See Uncertainty. They Don’t Like It.



Change in the S&P 500

since the day before

the 2016 election

BULL

MARKET

+60

%

+50

Almost a

correction

+40

BULL

MARKET

+30

CORRECTION

BEAR

MARKET

+20

Amid the

coronavirus

pandemic

CORRECTION

Amid Trump’s

trade war

+10

Inauguration

0

Election

2017

2018

2019

2020

Change in the S&P 500 since

the day before the 2016 election

BULL

MARKET

+60

%

+50

Almost a

correction

+40

BULL

MARKET

+30

BEAR

MARKET

CORRECTION

+20

Amid the

coronavirus

pandemic

CORRECTION

Amid Trump’s

trade war

+10

Inauguration

0

Election

2017

2018

2019

2020

Change in the S&P 500 since the day before the 2016 election

BULL

MARKET

%

+60

+50

Almost a

correction

+40

BULL

MARKET

+30

BEAR

MARKET

+20

Amid the

coronavirus

pandemic

CORRECTION

CORRECTION

Amid Trump’s

trade war

+10

Inauguration

0

Election

2017

2018

2019

2020


As of 11 a.m. Wednesday

Source: Refinitiv

By Karl Russell

The stock market has been on a tear for much of 2020, but there is now more volatility as investors worry about the outcome of the presidential vote.


Investors have spent recent months pushing the stock market to record highs, seemingly undeterred by the worst pandemic in a century and the enormous toll it has taken on the United States economy.

But now, politics is giving them agita.

In the last few weeks, the market’s results have reflected the uncertainty weighing on investors’ minds as they prepare for what could be a politically turbulent stretch — including a Senate fight to fill the former Supreme Court seat of Justice Ruth Bader Ginsburg and the November presidential election, which could result in a constitutional crisis if President Trump refuses to accept the judgment of voters.

And the first presidential debate didn’t necessarily ease investor’s minds. Paul Donovan, the chief economist of UBS Global Wealth Management, wrote in a note to clients that, if anything, Tuesday’s debate “may have increased expectations for a contested election result,” after Mr. Trump again suggested that he would challenge an unfavorable outcome.

Stocks have lost steam since notching new highs in early September, with the S&P 500 stock index down about 5 percent for the month as of Tuesday’s close, facing its first monthly decline since March. And last week, the index hovered around correction territory — a Wall Street term used to signify a market drop of 10 percent or more from a recent high. On Wednesday, the market was up 1 percent in early trading.

“Definitely, politics are coming into play,” said Stephen Gallagher, U.S. chief economist at the global investment bank Société Générale in New York.

Some Wall Street observers attribute the recent market slump to the fact that stock prices had become too expensive after rising roughly 60 percent since late March, when the Federal Reserve moved to prop up the economy. But analysts say that the market also dipped because professional money managers sold shares to reduce their risk and raise cash, moves that are typical responses to market uncertainty.

Heading into the year’s final quarter, investors are also coming to terms with the likelihood that there will be no more stimulus money coming, as the approaching presidential election paralyzes Washington’s ability to provide fresh support to the struggling economy. The “lack of the last piece of fiscal stimulus that people were counting on or hoping for” has left investors nervous, Mr. Gallagher said.

House Democrats this week did unveil a new $2.2 trillion coronavirus relief bill, but the two sides remain far apart.

“I don’t think the market will be ready to go up again until the results of the election are determined and a vaccine is here,” said Byron Wien, a longtime market observer and the vice chairman of the private wealth group at Blackstone, the private equity firm. “Then you could see another strong rally,” Mr. Wien said.

Image
Credit…Doug Mills/The New York Times

Investors crave clarity regarding political outcomes. They like knowing that a Republican administration will deliver tax cuts and deregulatory policies, or that a divided government will create gridlock. But this time around, the tensions are so high and the possible outcomes so muddy that many investors don’t know what to base their buying and selling decisions on. In such an environment, investors say, the most market-friendly outcome would simply be an overwhelmingly clear electoral result.

“The single biggest comment that I hear is, ‘I want an election, I want a result of an election that is so clear that it can’t really be contested,’” said Doug Rivelli, president of the institutional brokerage firm Abel Noser in New York.

In a research note published on Friday, JPMorgan Chase market analysts pointed to a similar dynamic: How the market responds to the election depends less on which candidate wins, and more on how conclusive the result is.

“A close election resulting in acrimony, legal challenges and legislative paralysis would be the worst outcome for markets given the ongoing global pandemic,” they wrote.

That would seem to be what investors are expecting, going by the prices for options on the VIX, as the Chicago Board Options Exchange Volatility index — widely considered the stock market’s “fear gauge” — is known. In recent weeks, those prices have moved in a way that suggests investors expect a chaotic aftermath of the vote.

“We’re seeing the markets price in potentially greater risk for the period after the election, than they are for Election Day,” said Steve Sosnick, chief strategist at Interactive Brokers in Greenwich, Conn. “I can’t remember a time where U.S. citizens had to worry about whether there would be a peaceful transfer of power, and whether all parties would have any doubt in accepting the electoral results,” Mr. Sosnick added.

Many investors are girding for a delayed or disputed electoral result. Because of the coronavirus pandemic, traditional voting will be disrupted this year as more people choose to mail in their votes rather than cast them in person. That could mean the winner of the election won’t be declared on election night.

Mr. Trump’s pronouncements on the election results are also weighing on investors’ minds. The president has for months made statements casting doubt on the validity of mail-in ballots, recently indicating that he does not feel bound by the political traditions that have made the peaceful transfer of power a feature of the American political system. He has repeatedly declined to commit to a peaceful transfer of power if the Democratic presidential candidate, Joseph R. Biden Jr. — the two met on Tuesday evening for the first presidential debate — wins. Mr. Trump has also renewed his inaccurate claims about extensive voting fraud.

“Let’s face it, very few in the market are anticipating a smooth election nor for any potential transition of power to be uneventful,” Ian Lyngen, a bond market analyst for BMO Capital Markets, wrote in a note to investors on Wednesday. “The extent to which November serves to disrupt functioning of the federal government or fuel further civil unrest remains to be seen and, frankly, is the most significant tail risk as we ponder potential outcomes.”

Image

Credit…John Taggart for The New York Times

A prolonged period with the election result in dispute would almost certainly keep investors wary about putting money into the market as they await clarity.

Erik Knutzen, multi-asset class chief investment officer at Neuberger Berman, who oversees investment portfolios of stocks, bonds, commodities and other assets, is keeping an eye on the market’s expectation that volatility will surge in the aftermath of the vote.

“That’s what the market’s saying,” Mr. Knutzen said. “So in our portfolios we’re moderate in our risk.”

Mr. Knutzen, who has been involved in financial markets for decades, recalled the period after the presidential election of 2000, when a dispute involving Florida votes was ultimately resolved through a Supreme Court ruling. Stocks fell more than 8 percent in the weeks after the vote, as the race remained unresolved.

“I certainly remember how volatile it was,” he said. “That is a fair kind of example of what is likely to happen” if the 2020 election turns into a court battle.

Beyond the market volatility, an uncertain electoral outcome also has implications for an economy still hamstrung by coronavirus. The U.S. economy has recovered from the worst of the downturn, and some pockets of strength — such as housing — have emerged. But unemployment, at 8.4 percent in August, is still high. Labor market data still shows hundreds of thousands of people applying for jobless benefits every week.

Until recently, there was widespread consensus on Wall Street that Congress and the White House would produce another economic stimulus package before the election, which would help keep American households and businesses afloat until the hoped-for arrival of a vaccine next year. However, the death on Sept. 18 of Justice Ginsburg — which began the contentious fight over confirming her replacement in an election year — effectively signaled the end of those efforts, which had already stalled.

Analysts say that any federal government response to an upsurge in coronavirus cases this season would be hard to pull off if there is a prolonged battle over the outcome of the election. That leaves investors facing the possibility of months without an operating government, an unattractive backdrop for those who put money to work. Therefore, as the election draws closer, investors are likely to continue reducing their exposure to the stock market and putting more money into what they consider safer assets, such as Treasury notes or gold.

“I think that their feeling is that between now and the election that they’re going to start to get a lot more conservative, a lot more defensive and start to take risk off the table,” said Abel Noser’s Mr. Rivelli, of the investors he speaks with. “They feel the risk of a market dislocation after the election is higher than they’re willing to stomach.”

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U.S. Risks Repeating 2009 Mistakes as Economic Recovery Slows

Trillions of dollars in federal aid to households and businesses has allowed the U.S. economy to emerge from the first six months of the coronavirus pandemic in far better shape than many observers feared last spring.

But that spending has now largely dried up and hopes for a major new aid package ahead of the Nov. 3 election are all but dead, even as the virus persists and millions of Americans remain unemployed. Already, there are signs that the economic rebound is losing steam, as some measures of consumer spending growth decelerate and job gains slow. Applications for jobless benefits rose last week, with about 825,000 Americans filing for state unemployment benefits.

The combination of a moderating economic rebound and fading government support are an eerie echo of the weak period that followed the 2007 to 2009 recession. In the view of many analysts, a premature pullback in government support back then led to a grinding recovery that left legions of would-be employees out of work for years. In recent weeks, prominent economists have warned that both the United States and Europe, where many early responses are drawing to a close, are at risk of repeating that mistake by cutting off government aid too soon.

“The initial response was good, but we need more,” said Karen Dynan, who was chief economist at the Treasury Department in the Obama administration and now teaches at Harvard. The decision to pull back on spending a decade ago, she said, “really prolonged the period of weakness after the great recession.”

In Europe, some national governments that have spent aggressively to subsidize wages and curb layoffs are wrapping up those efforts. While large countries including Germany have indicated that they remain willing to provide more support, some economists warn that continued aid announced in France and elsewhere might fall short of what is needed in the near term.

In the United States, the situation is more immediately worrying. Leaders of both major political parties have expressed support, at least in theory, for additional aid. But the parties remain far apart on a deal, with Democrats pushing for a large package and Republicans arguing that a smaller plan will suffice.

The ability to reach a compromise in the coming weeks has been further complicated by a looming confirmation battle to replace Ruth Bader Ginsburg on the Supreme Court.

“That’s my great concern, that we’re going leave and not have a stimulus Covid package put together,” Senator Roy Blunt, Republican of Missouri, said Thursday. “I just think the Supreme Court thing used up a lot of oxygen. We’ll see. I’d like to see us get this done.”

One factor making an agreement even less likely: The economic revival is slowing, but not as sharply as some economists predicted would happen once expanded unemployment insurance and other programs began to ebb.

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Credit…Amr Alfiky/The New York Times

Job growth slowed in July and August but remained positive. Consumer spending, which rebounded sharply once federal money started flowing in April, has likewise seen a more gradual rebound but has not fallen. Layoffs, as measured by claims for unemployment insurance, have continued to trend down, although they remain high by historical standards.

But many economists said that allowing the economy to slow at the current moment — with millions out of work or underemployed — could lead to long-term economic scarring. Employers have still hired back less than half of the 22 million workers they laid off in March and April, and the unemployment rate is higher than the peak of many past recessions. Even optimistic forecasts imply that gross domestic product will shrink more this year than in the worst year of the last recession.

“A stalling recovery when we’re stalling at near the worst point of the great recession is a terrible outcome,” said Tara Sinclair, an economist at George Washington University.

Jerome H. Powell, the Fed chair, made clear during congressional hearings this week that the economy, while recovering, would likely need more support.

“The power of fiscal policy is unequaled, by really anything else,” Mr. Powell said during testimony before a House subcommittee on Wednesday. “We need to stay with it, all of us,” adding, “the recovery will go faster if there’s support coming both from Congress and from the Fed.”

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Credit…Pool photo by Kevin Dietsch

His colleague Eric Rosengren, president of the Federal Reserve Bank of Boston, said Wednesday that additional fiscal policy “is very much needed” but noted it “seems increasingly unlikely to materialize anytime soon.”

Some economists warn that the economy could begin to shrink again if Congress doesn’t act. Many households were able to save in the spring, thanks to federal aid and shutdown orders that kept them from spending money on restaurant meals and hotel stays. Households socked away about one-third of their disposable incomes in April, and while the savings rate has come down since, it remained sharply elevated from pre-crisis levels through July. That should create some buffer.

But those funds won’t sustain jobless families indefinitely now that extra unemployment benefits have expired and a partial supplement supported by repurposed federal funds is on the brink of running out. And businesses that were kept afloat during the summer may struggle when colder weather puts an end to outdoor dining and other activities.

There is an alarming precedent for what happens when support fades in the midst of an uncertain economic moment.

In the early stages of the 2008 financial crisis, Congress and the White House — first under President George W. Bush, then under President Barack Obama — pumped billions of dollars into the economy in the form of tax cuts for individuals and companies, infrastructure spending, extended unemployment benefits and other measures.

But Mr. Obama was unable to win approval for further large-scale stimulus efforts, and by 2010 Congress had effectively ceded to the Federal Reserve the job of managing the still-tenuous economic recovery.

“The lesson from the last crisis is that we had elevated unemployment for years, and it was a slow grind to work that down,” Robert S. Kaplan, president of the Federal Reserve Bank of Dallas, said in an interview Monday, explaining that he supports extending fiscal aid. “We have a chance here, if we act quickly, to mitigate the lasting damage that we saw.”

The post-financial crisis pullback in government spending was even more dramatic in Europe, where austerity was enforced across countries with weaker economies and higher debt levels, and where the European Central Bank raised interest rates in 2011, removing monetary support years before the Fed first tiptoed higher in 2015. Another slump ensued across European economies, bringing with it years of high unemployment, low inflation and weak growth.

There are important differences between the two crisis eras, especially in the United States. The economy was far stronger before the pandemic hit than in 2007, when inflated home prices, risky lending and financial engineering left the banking system vulnerable. And policymakers responded far more quickly and aggressively this time around.

The Fed cut interest rates close to zero in March, before data showing widespread economic damage had even begun to emerge. In the last crisis, the Fed didn’t take that step until the end of 2008, a year after the recession had begun. The European Central Bank rolled out massive bond-buying programs, something monetary policymakers in the currency block resisted in the immediate aftermath of the 2009 crisis.

But central banks have less room to adjust their policies to bolster growth now than they did a decade ago. Interest rates and inflation have fallen to low levels across advanced economies, stealing potency from monetary policy tools that work by making credit cheap.

That’s where fiscal policy — elected officials’ ability to tax and spend — comes in. Economic theory suggests that fiscal policy can be effective at times when monetary policy is not.

Initially, policymakers across advanced economies seemed far more willing to spend heavily and amass huge deficits than they were during the last crisis, at least in part because the same low interest rates robbing central banks of their power have made payments on government debt cheaper.

In the early days of this crisis, Congress approved legislation that sent direct payments to most American households, established a small-business assistance program that eventually handed out more than half a trillion dollars in grants and low-interest loans, and added $600 a week to unemployment checks, while simultaneously expanding the unemployment system to cover millions more workers. Together, the programs dwarfed the response to the last recession.

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Credit…Joseph Rushmore for The New York Times

The aggressive response was successful. After shedding millions of workers in March and April, companies began bringing them back in May and June. Stimulus checks and enhanced unemployment lifted personal incomes in April and May, buoying spending. A predicted wave of foreclosures and evictions largely failed to materialize. By August, the unemployment rate had fallen to 8.4 percent, defying expectations that it would remain in double digits into next year.

While Mr. Powell said that government spending so far should get “credit” for that outcome, risks loom if key programs are allowed to permanently lapse. As unemployed workers run through their savings, they might pull back on spending, evictions and foreclosures could increase, and the fallout could scar the economy, he said during testimony on Thursday.

“There’s downside risks to the economy probably coming if some form of that support does not continue,” Mr. Powell said.

While the Fed has pledged to keep rates low and is operating a variety of programs meant to keep credit flowing to households and businesses, those are not a substitute for direct federal spending.

Economists said Mr. Powell appears to have learned a lesson from the aftermath of the last recession: When the Fed is forced to try to rescue the economy on its own, the result is a painfully slow recovery that takes years to reach many of the most vulnerable households.

The consequences of another slow recovery would almost certainly fall disproportionately on low-income families, many of them Black and Hispanic. Those workers were among the last to benefit from the plodding recovery after the last recession, and have been among the hardest hit by the current crisis.

“This pandemic, and our efforts here, could very well create even greater inequality in our nation than there was even before the pandemic,” said Representative Andy Kim, Democrat of New Jersey and a former Obama administration official. “Some are going to be able to get through this much, much better than others, and those that are not? This is one of those once in a lifetime situations that could very well cripple them for a generation if we don’t take some of the necessary steps in the next few weeks and months.”

Peter S. Goodman and Emily Cochrane contributed reporting.

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House Report Condemns Boeing and FAA in 737 Max Crashes

The two fatal crashes that killed 346 people aboard Boeing’s 737 Max and led to the worldwide grounding of the plane were the “horrific culmination” of engineering flaws, mismanagement and a severe lack of federal oversight, the Democratic majority on the House Transportation and Infrastructure Committee said in a report on Wednesday.

The report, which condemns both Boeing and the Federal Aviation Administration for safety failures, concludes an 18-month investigation based on interviews with two dozen Boeing and agency employees and an estimated 600,000 pages of records. Over more than 200 pages, the Democrats argue that Boeing emphasized profits over safety and that the agency granted the company too much sway over its own oversight.

“This is a tragedy that never should have happened,” Representative Peter A. DeFazio of Oregon, the committee chairman, said. “It could have been prevented, and we’re going to take steps in our legislation to see that it never happens again.”

Representative Sam Graves of Missouri, the committee’s top Republican, said that while change was needed, congressional action should be based on nonpartisan recommendations, “not a partisan investigative report.”

The report was issued as the F.A.A. appeared close to lifting its grounding order for the Max after test flights this summer. F.A.A. clearance could lead aviation authorities elsewhere to follow suit and allow the plane to fly again as soon as this winter.

The congressional report identified five broad problems with the plane’s design, construction and certification. First, the race to compete with the new Airbus A320neo led Boeing to make production goals and cost-cutting a higher priority than safety, the Democrats argued. Second, the company made deadly assumptions about software known as MCAS, which was blamed for sending the planes into nosedives. Third, Boeing withheld critical information from the F.A.A. Fourth, the agency’s practice of delegating oversight authority to Boeing employees left it in the dark. And finally, the Democrats accused F.A.A. management of siding with Boeing and dismissing its own experts.

“These issues must be addressed by both Boeing and the F.A.A. in order to correct poor certification practices that have emerged, reassess key assumptions that affect safety and enhance transparency to enable more effective oversight,” the committee said.

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Credit…Mulugeta Ayene/Associated Press

The findings are largely in line with an abundance of information uncovered by federal investigators, news reporters and the committee’s preliminary findings after the crashes in Indonesia in October 2018 and Ethiopia in March 2019.

Those crashes were caused in part by the MCAS system aboard the Max. Because the engines on the Max are larger and placed higher than on its predecessor, they could cause the jet’s nose to push upward in some circumstances. MCAS was designed to push the nose back down. In both crashes, the software was activated by faulty sensors, sending the planes toward the ground as the pilots struggled to pull them back up.

The deaths could have been avoided, however, if not for a series of safety lapses at Boeing and the F.A.A., the Democrats argued.

Internal communications show that Boeing dismissed or failed to adequately address concerns raised by employees relating to MCAS and its reliance on a single external sensor, the committee found. It also accused Boeing of intentionally misleading F.A.A. representatives, echoing a July report from the Transportation Department’s inspector general.

That report found that Boeing had failed to share critical information with regulators about important changes to MCAS; had been slow to share a formal safety risk assessment with the agency; and had chosen to portray the software as a modification to an existing system rather than a new one, in part to ease the certification process.

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Credit…Beawiharta Beawiharta/Reuters

The Democrats on the committee also accused Boeing of putting a priority on profits by strongly opposing a requirement that pilots receive simulator training to fly the plane. Under a 2011 contract with Southwest Airlines, for example, Boeing promised to discount each of the 200 planes in the airline’s order by $1 million if the F.A.A. ended up requiring simulator training for pilots moving from an earlier version of the aircraft, the 737NG, to the Max.

“That drove a whole lot of really bad decisions internally in Boeing, and the F.A.A. did not pick up on these things,” Mr. DeFazio said.

In a statement, Boeing said it had learned lessons from the crashes and had started to act on the recommendations of experts and government authorities.

“Boeing cooperated fully and extensively with the committee’s inquiry since it began in early 2019,” the company said in a statement. “We have been hard at work strengthening our safety culture and rebuilding trust with our customers, regulators and the flying public.”

The revised Max design has received extensive review, Boeing said, arguing that once the plane is ready to fly again, “it will be one of the most thoroughly scrutinized aircraft in history.”

The F.A.A. said in a statement that it would work with the committee to carry out any recommended changes and was already making some of its own.

“These initiatives are focused on advancing overall aviation safety by improving our organization, processes and culture,” it said.

Last month, the agency announced plans to require a number of design changes to the Max before it can fly again, including updating MCAS and rerouting some internal wiring. The proposed requirement is open for public comment until next week.

Despite the damage to Boeing’s reputation, the Max has customers that cannot break contracts with the company, are attracted by the promise of longer-term fuel savings or otherwise still want the plane in their fleet. Still, Boeing warned in January that the Max grounding would cost more than $18 billion. The severe downturn in travel because of the pandemic only made matters worse, contributing to the company’s decision to cut more than 10 percent of its work force.

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Trump’s Go-It-Alone Stimulus Won’t Do Much to Lift the Recovery

The executive actions President Trump took on Saturday were pitched as a unilateral jolt for an ailing economy. But there is only one group of workers that seems guaranteed to benefit from them, at least right away: lawyers.

Mr. Trump’s measures include an eviction moratorium, a new benefit to supplement unemployment assistance for workers and a temporary delay in payroll tax liability for low- and middle-income workers. They could give renters a break and ease payments for some student loan borrowers. But they are likely to do little to deliver cash any time soon to Americans hit hard by the recession.

Even conservative groups have warned that suspending payroll tax collections is unlikely to translate into more money for workers. An executive action seeking to essentially create a new unemployment benefit out of thin air will almost certainly be challenged in court. And as Mr. Trump’s own aides concede, the orders will not provide any aid to small businesses, state and local governments or low- and middle-income workers.

If the actions signal the death of a congressional deal to provide that aid, economists warn, the economy will limp toward November without the fiscal support that hastened its recovery after its quick dive into a pandemic-induced recession.

The federal government’s aid to small businesses through the Payroll Protection Program was set to expire on Saturday. Executives, trade groups and business lobbyists had pushed hard for a second round of lending — along with new programs to get money to the businesses and industries hit hardest in the crisis — to be included in any congressional stimulus deal. Mr. Trump’s actions do nothing to help those companies.

Low- and middle-income families’ spending power was bolstered in the spring by direct payments of $1,200 per adult that were included in a relief bill Mr. Trump signed into law in March. Lawmakers were pushing for a second round of those checks in a legislative deal. Mr. Trump’s measures will not provide them.

The orders will not provide aid to states and local governments, whose tax revenues have plunged as a direct result of the contraction in economic activity brought on by the virus. Without more money from the federal government, states and local governments will almost certainly have to cut their budgets and lay off workers, increasing the ranks of the unemployed.

Supplemental unemployment benefits of $600 per week, which expired at the end of July, had been supporting consumer spending at a time when about 30 million Americans are unemployed. Mr. Trump’s memo seeking to repurpose other money, including federal disaster aid, to essentially create a $400-a-week bonus payment is likely to be challenged in court and is unlikely to deliver additional cash to laid-off workers any time soon. It, too, raises questions even if it is deemed legal — for instance, whether states that are already struggling with their budgets will be able to afford the 25 percent contribution that Mr. Trump’s memo says they will need to make toward the new benefit.

Mark Meadows, the White House chief of staff, conceded many of those limitations in an interview set to air Sunday on Gray Television’s “Full Court Press With Greta Van Susteren.”

“The downside of executive orders is you can’t address some of the small business incidents that are there,” Mr. Meadows said. “You can’t necessarily get direct payments, because it has to do with appropriations. That’s something that the president doesn’t have the ability to do. So, you miss on those two key areas. You miss on money for schools. You miss on any funding for state and local revenue needs that may be out there.”

The actions will not even provide the payroll tax cut that Mr. Trump has long coveted as a centerpiece of stimulus efforts. They will simply suspend collection of the tax, as one of Mr. Trump’s longtime outside economic advisers, Stephen Moore, has recently urged him to do. Workers will still owe the tax, just not until next year. And while Mr. Moore has said that Mr. Trump could promise to sign a law that would permanently absolve workers of that liability, there is no guarantee that Congress would go along.

The uncertainty raises a host of questions for companies and workers, including a cascade of intricate tax questions, according to a recent analysis published by Joe Bishop-Henchman of the National Taxpayers Union Foundation. (For example: If workers owe less payroll tax, they would owe slightly more income tax; would employers change, on the fly and in the middle of the year, how much income tax they withhold?) He concluded that most companies were unlikely to take any risks.

“Without detailed answers to some of these questions,” Mr. Bishop-Henchman wrote, “employers might just steer clear of all of it by continuing to do what they’ve always done, blunting the desired economic impact of reducing taxes.”

Outside of Mr. Moore and the conservative group FreedomWorks, which cheered the payroll tax memorandum even before it was announced, few economists expressed confidence that Mr. Trump’s actions would change the trajectory of an economic recovery that has slowed in the last two months as the virus surged anew in many parts of the nation.

Instead, analysts and lawmakers saw politics at play. Republicans said Mr. Trump was forcing Democrats back to the bargaining table and showing Speaker Nancy Pelosi of California and Senator Chuck Schumer of New York, the Democratic leader, that they had overplayed their hands in pushing for a $3.4 trillion aid package.

“I am glad that President Trump is proving that while Democrats use laid-off workers as political pawns, Republicans will actually look out for them,” Senator Mitch McConnell of Kentucky, the majority leader, said on Saturday.

But if negotiations falter now and aid remains scarce for people and businesses, Mr. Trump will be making a political bet: that it is better to tell voters he tried to help the economy than to have actually helped it. Mr. Trump is the president, and he has happily claimed credit for the economy’s performance.

If job growth slows further, and millions of unemployed Americans struggle to make ends meet, he will need to make the case for why the symbolism of acting alone won out over the farther-reaching effects of cutting a deal.

Emily Cochrane contributed reporting.

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Lawmakers, United in Their Ire, Lash Out at Big Tech’s Leaders

WASHINGTON — The chief executives of Amazon, Apple, Google and Facebook, four tech giants worth nearly $5 trillion combined, faced withering questions from Republican and Democratic lawmakers alike on Wednesday for the tactics and market dominance that had made their enterprises successful.

For more than five hours, the 15 members of an antitrust panel in the House lobbed questions and repeatedly interrupted and talked over Jeff Bezos of Amazon, Tim Cook of Apple, Mark Zuckerberg of Facebook and Sundar Pichai of Google.

It was the first congressional hearing for some time where Democrats and Republicans acted as if they had a common foe, though for different reasons. Democratic lawmakers criticized the tech companies for buying start-ups to stifle them and for unfairly using their data hoards to clone and kill off competitors, while Republicans questioned whether the platforms had muzzled conservative viewpoints and were unpatriotic.

“As gatekeepers to the digital economy, these platforms enjoy the power to pick winners and losers, shake down small businesses and enrich themselves while choking off competitors,” said Representative David Cicilline, Democrat of Rhode Island and chairman of the House Judiciary Committee’s antitrust subcommittee. “Our founders would not bow before a king. Nor should we bow before the emperors of the online economy.”

In response, Mr. Pichai, Mr. Zuckerberg, Mr. Cook and Mr. Bezos, who testified via videoconference because of the coronavirus pandemic, were forced to strike a more humble chord. They presented themselves as participants in enormously competitive and fast-changing digital marketplaces, and they evaded questions about the decisions that turned their companies into giants.

“We approach this process with respect and humility, but we make no concession on the facts,” said Mr. Cook at the outset of his testimony.

Not since Microsoft stood trial in the late 1990s for antitrust charges have tech chief executives been under such a microscope for the power of their businesses. With echoes of the trustbusting of U.S. Steel and Standard Oil more than a century ago and AT&T in 1984, the hearing underlined the government’s recognition that this cohort of tech companies — which wield immense control over commerce, communications and public discourse — had become the new trusts of the internet age.

President Trump also used the event to rail against tech power. In a post on Twitter before the hearing began, he said that he would issue executive orders to rein in the companies if Congress did not.

From its conception, the House antitrust hearing was set to be a spectacle, lining up four of the world’s most powerful executives — with two of them among the planet’s richest individuals — to answer largely hostile questions together. While the joint appearance limited sustained questioning of any one executive, it created a side-by-side image that recalled the 1994 congressional hearing of top American tobacco executives, who said they did not believe that cigarettes were addictive.

House lawmakers, who had opened an investigation into the tech companies in June 2019, made the most of it. Representative Jerry Nadler, Democrat of New York, confronted Mr. Zuckerberg with the C.E.O.’s own emails, saying they showed a plot to take out a young competitor. Representative Jim Jordan, Republican of Ohio, said Google was biased and asked Mr. Pichai whether the company would change its products to help elect Joseph R. Biden for president.

In one of the sharpest exchanges, Representative Pramila Jayapal, a Washington Democrat, confronted Mr. Bezos on accusations that an Amazon lawyer had lied to the committee about how the company develops its own products. She asked him to answer whether it misused data with a yes or no.

“I can’t answer that question yes or no,” said Mr. Bezos, appearing rattled.

Yet while the hearing was ripe with theater, any impact will be limited by antitrust laws that were created a century ago and that are imperfect for corralling internet firms. Since the 1980s, enforcement officials have used the notion of consumer welfare as the predominant test for antitrust violations — generally meaning that if prices are not going up, the markets are most likely competitive enough. The tech giants have generally not driven up prices of digital services or consumer goods; many do not charge at all for services like Google Maps or Instagram.

While Democrats at the hearing indicated they were more inclined to change antitrust law, Representative Jim Sensenbrenner, Republican of Wisconsin, said he did not think the laws needed to change. Ultimately, Congress doesn’t have the power to break up the companies.

Still, the proceedings provided fuel to other investigations of the tech companies by the Justice Department, the Federal Trade Commission and state attorneys general. The Justice Department is expected to soon announce charges against Google accusing it of abusing its dominance in online advertising, people with knowledge of the investigation have said. The F.T.C. is preparing to question Mr. Zuckerberg under oath in its investigation of Facebook’s grip over social networking and acquisitions of nascent rivals.

“This is a critical juncture in how the Washington policy clash with the titans of Silicon Valley unfolds,” said Gene Kimmelman, a former Justice Department antitrust official and a special adviser to the consumer advocacy group Public Knowledge.

Regulators around the world are also moving to limit the power of the tech giants. Europe has led the charge with antitrust investigations and Margrethe Vestager, the region’s top trustbuster, recently vowed to take a harder line on the companies. On Wednesday, Turkey passed legislation giving its government sweeping new powers to regulate social media content.

The hearing on Wednesday was a turnabout from just a few years ago, when Facebook, Google, Amazon and Apple were emblems of national pride for their innovation and growth. But the expanding reach of the four — which are involved in everything from smartphones to e-commerce to digital payments — and their stumbles in misinformation, privacy, election interference and labor issues have increasingly raised hackles.

Even so, the companies have continued growing as more people live their lives online, with all of them expected to post solid financial performances when they report quarterly earnings on Thursday.

The hearing was made more bizarre by Mr. Bezos, Mr. Cook, Mr. Pichai and Mr. Zuckerberg dialing in remotely using Cisco’s Webex videoconferencing service. Lawmakers — who mostly appeared in person wearing masks in a House hearing room — faced empty chairs and a jumbo screen with the faces of the executives, who looked soberly into their cameras.

Lawmakers nonetheless drilled down on key moments when the companies had gained power or allegedly squeezed consumers, competitors and small businesses. They directed most of their questions to Mr. Zuckerberg and Mr. Pichai, then to Mr. Bezos, according to a tally by The New York Times. Mr. Cook was asked the fewest questions.

The tone of the hearing was set with Mr. Cicilline’s very first question, directed at Mr. Pichai. “Why does Google steal content from honest businesses?” Mr. Cicilline asked. Mr. Pichai replied: “Mr. Chairman, with respect, I disagree with that characterization.”

Mr. Pichai was repeatedly asked about Google’s dominance in search and how the company was potentially trying to keep users within “a walled garden.” He said Google had many competitors for specific categories of search, such as shopping.

Mr. Zuckerberg was asked about Facebook emails where executives discussed the company’s 2012 acquisition of Instagram as a possible strategy to take out a nascent competitor. Mr. Zuckerberg said that, in fact, Instagram’s success had never been guaranteed and was the result of Facebook’s investment in the product.

When lawmakers asked Mr. Bezos if Amazon had bullied small merchants, he said that it was “not how we operate the business” — before being confronted by an audio recording of a bookseller begging him directly for relief.

In response to questions about whether Apple favored some app developers over others, Mr. Cook said there were “open and transparent rules” that applied “evenly to everyone.”

David Heinemeier Hansson, the co-founder of Basecamp, a project-management company that has battled with both Google and Apple over their market power, said the hearing would be irrelevant if the government did not act to rein in the tech giants.

“What we ultimately need is relief. We don’t just need a historic moment. We need this to lead to legislation and regulation and enforcement,” he said.

But, Mr. Heinemeier Hansson added, “thankfully I’ve never been more optimistic for that than I am right now.”

Reporting was contributed by Jack Nicas, Mike Isaac, Daisuke Wakabayashi, Karen Weise and Kellen Browning.

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Tech C.E.O.s From Amazon, Apple, Facebook and Google to Testify Before Congress

WASHINGTON — After lawmakers collected hundreds of hours of interviews and obtained more than 1.3 million documents about Amazon, Apple, Facebook and Google, their chief executives will testify before Congress on Wednesday to defend their powerful businesses from the hammer of government.

The captains of the New Gilded Age — Jeff Bezos of Amazon, Tim Cook of Apple, Mark Zuckerberg of Facebook and Sundar Pichai of Google — will appear together before Congress for the first time to justify their business practices. Members of the House judiciary’s antitrust subcommittee have investigated the internet giants for more than a year on accusations that they stifled rivals and harmed consumers.

The hearing is the government’s most aggressive show against tech power since the pursuit to break up Microsoft two decades ago. It is set to be a bizarre spectacle, with four men who run companies worth a total of around $4.85 trillion — and who include two of the world’s richest individuals — primed to argue that their businesses are not really that powerful after all.

And it will be a first in another way: Mr. Zuckerberg, Mr. Pichai, Mr. Bezos and Mr. Cook will all be testifying via videoconference, rather than rising side-by-side for a swearing-in at a witness table in Washington. Perhaps appropriately, their reckoning will be broadcast online.

“It has the feeling of tech’s Big Tobacco moment,” said Gigi Sohn, a former senior adviser at the Federal Communications Commission and a fellow at Georgetown University’s law school, referring to the 1994 congressional appearance of top executives of the seven largest American tobacco companies, who said they did not believe that cigarettes were addictive.

The hearing, which caps a 13-month investigation by the House subcommittee, will be closely watched for clues that could advance other antitrust cases against the companies. The Federal Trade Commission, for one, is preparing to depose Mr. Zuckerberg and other Facebook executives in its 13-month probe of the social network. The Justice Department may soon unveil a case against Google. And an investigation into Apple by state attorneys general also appears to be advancing.

As a result, preparations for the hearing have been frenetic — even with the event postponed by a few days this week to accommodate the commemoration of Representative John Lewis — as tech lobbyists jockeyed behind the scenes to influence the types of questions that lawmakers might ask.

At the hearing, which starts at noon on Wednesday, the 15 members of the antitrust subcommittee will have five minutes for each question. Representative David Cicilline, Democrat of Rhode Island and the chairman of the subcommittee, will control the number of rounds of questioning, potentially stretching questioning into the evening.

The length of the hearing may also be prolonged since the antitrust issues facing Apple, Facebook, Google and Amazon are complex and vastly different.

Amazon is accused of abusing its role as both a retailer and a platform hosting third-party sellers on its marketplace. Apple has been accused of unfairly using its clout over its App Store to block rivals and to force apps to pay high commissions. Rivals have said Facebook has a monopoly in social networking. Alphabet, the parent company of Google, is dealing with multiple antitrust allegations because of Google’s dominance in online advertising, search and smartphone software.

Democrats may also veer off the topic of antitrust and bring up concerns about misinformation on social media. Some Republicans are expected to sidetrack discussion with their concerns of liberal bias at the Silicon Valley companies and accusations that conservative voices are censored.

“There was an attitude these were great American companies that created jobs and that we should have a hands-off approach and let them flourish,” Mr. Cicilline said in an interview. “But there are a lot of serious issues we have uncovered over the course of the investigation that weren’t apparent when we first began investigating.”

Facebook, Amazon, Google and Apple declined to comment.

For the chief executives, the hearing will be a test of how they perform under fire. Mr. Bezos, 56, has not previously testified to Congress, while Mr. Cook, 59, and Mr. Pichai, 48, have both testified once before. Mr. Zuckerberg, 36, the youngest of the group, has the distinction of being the veteran: He has answered questions at three congressional hearings in the past two years as Facebook has dealt with issues such as election interference and privacy violations.

But none are taking any chances for the event to go awry. Mr. Zuckerberg, who had been at his 750-acre estate on the Hawaiian island of Kauai, has been preparing for his testimony with the law firm WilmerHale, according to people with knowledge of the matter. And a small team is working with Mr. Bezos for his testimony in Seattle, said people with knowledge of the matter.

For weeks, the tech giants have also waged a lobbying battle to soften any blows. All four chief executives planned to call lawmakers on the House subcommittee in the days before the hearing, said three people with knowledge of the preparations who were not authorized to speak publicly.

Apple and Amazon also recently released studies to rebut claims of market dominance and anticompetitive practices. Last week, Apple publicized a study by a consulting firm called Analysis Group showing that the 30 percent commission it charges many apps for the right to appear on iPhones is close to what other platforms charge for distribution. The study left out that Apple helped popularize that 30 percent standard across the industry.

Amazon-funded economic consultants have in recent months argued that the e-commerce company’s business model, which is not grounded in selling ads like Google and Facebook, makes it less likely to violate antitrust laws. Last week, Amazon also released a report on small business, saying sales by third-party sellers grew 26 percent in the past year, outpacing Amazon’s own sales directly to consumers.

Google has said that the search and advertising tech markets that it dominates are changing fast. More than half of all searches for products on the internet originate on Amazon, Google’s lobbyists have said.

And Facebook’s Washington staff has pointed to competition from China, particularly from the popular video app TikTok, as evidence that competition in social media abounds. The Chinese-owned app is in the cross hairs of the Trump administration, which has threatened to ban it for national security reasons.

Big Tech’s rivals have also jockeyed to have their gripes brought up at the hearing, even if for just a few minutes. The House subcommittee has been flooded with proposed questions, documents and letters from the companies’ competitors, according to congressional staff and rivals.

Spotify, for instance, submitted questions about Apple’s dominance of the App Store. GreatFire, a China-based group, sent a letter with nine questions for Mr. Cook about Apple’s censorship of certain apps in China. Blix, a company whose email app competes with Apple and that is suing Apple in federal court for patent infringement, sent five questions to the subcommittee, including one on why Apple ranked its own apps ahead of rivals’ offerings in its App Store.

This month, David Heinemeier Hansson, the co-founder of Basecamp, a project-management tool, said he also briefed lawmakers on a recent public spat with Apple. Apple had denied Basecamp’s new email app from appearing in the App Store because it charged customers outside of Apple’s payment system. After Mr. Heinemeier Hansson complained publicly, Apple permitted the app with some minor changes.

The subcommittee’s members, who have already held five hearings about the tech giants, were informed and thoughtful during his briefing, Mr. Heinemeier Hansson said.

“Clearly there’s already a great resonance,” he said.

Even if the hearing results in more theater than substance, some said the greatest risk to the tech companies was increasing momentum toward regulations.

“The C.E.O.s don’t want to be testifying. Even having this collective hearing creates a sense of quasi-guilt just because of who else has gotten called in like this — Big Pharma, Big Tobacco, Big Banks,” said Paul Gallant, a tech policy analyst at the investment firm Cowen. “That’s not a crowd they want to be associated with.”

Cecilia Kang reported from Washington, Jack Nicas from Chicago and David McCabe from Wellfleet, Mass. Daisuke Wakabayashi, Mike Isaac and Karen Weise contributed reporting.