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My Hero, Zero
Federal Reserve officials signaled plans to keep interest rates near zero for years and said they were studying how to provide more support to a U.S. economy battered by the coronavirus and related shutdowns. In new projections, all 17 officials who participate in the rate-setting meetings said they expect to hold rates close to zero next year, and 15 of them projected rates would stay there through 2022, Nick Timiraos reports.
“We’re not thinking about raising rates. We’re not even thinking about thinking about raising rates,” Fed Chairman Jerome Powell said.
Mr. Powell played down the positive news from last week’s report that the economy unexpectedly added 2.5 million jobs in May, highlighting the potential long-run damage the virus could inflict on the economy by changing consumer and business behavior. Most officials projected the unemployment rate would average between 9% and 10% during the last three months of the year and the economy would contract by anywhere between 4% and 10% this year.
WHAT TO WATCH TODAY
U.S. jobless claims are expected to fall to 1.595 million in the week ended June 6 from 1.877 million a week earlier. Follow our coverage here. (8:30 a.m. ET)
The U.S. producer-price index for May is expected to be unchanged from a month earlier. (8:30 a.m. ET)
The Wall Street Journal’s survey of economists is out at 10 a.m. ET.
TOP STORIES
Prices Fall for All the Stuff We’re Not Buying
U.S. consumer prices dropped for a third straight month in May as the coronavirus pandemic kept shoppers and travelers at home. Economists said the worst of the coronavirus-related hit to inflation should be over, with states reopening and shopping demand returning, Harriet Torry reports.
Grocery prices climbed as Americans hunkered down. The cost of food bought for home consumption rose 1% in May following April’s increase of 2.6%, which was the largest month-over-month jump in grocery prices since 1974. Other categories also saw wild swings. Airline fares and lodging away from home posted their biggest annual drops on record. Meantime, the cost of outdoor equipment and supplies, and recreation services posted their largest increases on record, showing how consumer preferences have shifted during the pandemic.
Spend, Spend, Spend
The U.S. government’s budget deficit rose 92% in May from a year earlier as revenues plummeted and spending surged on efforts to stem the new coronavirus pandemic and the fallout from lockdowns. Since March, Congress has authorized more than $3.3 billion of aid for the economy in the form of higher spending and lower or delayed taxes. Lawmakers are weighing how much more stimulus to provide, Paul Kiernan reports.
Treasury Secretary Steven Mnuchin told lawmakers he supports targeted additional aid to businesses that have been hit hardest by the coronavirus pandemic. Mr. Mnuchin demurred on what the additional aid should look like, though he said it could include tax credits or direct funding, Ryan Tracy and Amara Omeokwe report.
U.S. lawmakers proposed spending billions of federal dollars to strengthen the U.S. semiconductor industry. The bipartisan effort follows lobbying from the chip industry to put more money into domestic factory-building to counter billions of dollars in incentives that other countries, including China, have used to attract plants, Asa Fitch and Kate O’Keeffe report.
Fast Fashion
Zara-owner Inditex said it is permanently closing as many as 1,200 stores—16% of its global outlets—and will pivot more aggressively toward selling online, as the fast-fashion giant maps out its post-pandemic future. As many of the world’s major economies start to reopen, global retailers like Inditex are throwing open the doors to their stores again, hoping demand and foot traffic will return. But for many big players, the pandemic only punctuated a yearslong reckoning brought about by a boom in online shopping. Inditex is one of the first big retailers to outline how it sees the industry’s future amid a tentative reopening. The answer: fewer stores and a more concerted push online, Saabira Chaudhuri reports.
China’s Ups and Downs
China’s auto sales jumped 14.5% last month, marking a second straight month of gains. While strong sales of commercial vehicles continued to be the main growth engine, the passenger-car sector recorded an increase of 7%, its first since July 2017. The world’s biggest auto market ended a 21-month losing streak in April with sales growth of 4.4% compared with the same period last year, Erin Mendell reports.
Jobs, instead of growth, will be the focus of China’s post-Covid-19 economy. The plight of the country’s millions of low-income workers is highlighting the gaps in China’s social safety net—and creating political fissures as well. A recent speech by Chinese Premier Li Keqiang has brought the stark contrast between the haves and have nots to the fore. Mr. Li said last month that 600 million people, or more than 40% of the country’s population, have an income of just 1,000 yuan ($141) a month—less than half of China’s official median disposable income in 2019, Jacky Wong reports.
Economists Fight Over ‘Defund the Police’
A prominent economist faced pressure from others in his field to step down from an editing post because of comments he made criticizing the Black Lives Matter and Defund the Police movements, reflecting some of the turmoil roiling economics and other professions following the police killing of George Floyd. The sparring this week between critics and defenders of University of Chicago economist Harald Uhlig, the lead editor of the Journal of Political Economy, comes amid national protests over police brutality and discussions about racial inequality and policing practices. The debate over Mr. Uhlig also follows several years in which the economics profession has sought to grapple with tensions in its ranks over its lack of racial and gender diversity, Amara Omeokwe reports.
TWEET OF THE DAY
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WHAT ELSE WE’RE READING
Climate change could wreak havoc on the economies of poor countries, not just because they are closer to the equator but because far more of their labor force works in agriculture, a paper by Ishan Nath of the University of Chicago notes. As temperatures rise, the productivity of developing country farmers will fall much more than northern farmers. In theory, poor countries could solve that problem by importing more food from the north and having farmers shift to manufacturing. In reality, the collapse in food productivity is likely to drive even more workers out of higher-productivity sectors into agriculture, making the country even poorer. “Overall, climate change reduces global GDP by 12% more, and by 52% more for the poorest quartile of the world,” Mr. Nath writes.
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