Stocks slump after Fauci, Fed set somber tone
Stocks tumbled after a U.S. official warned against a premature reopening of the economy amid a dire outlook from Federal Reserve regional chiefs. Treasurys and the dollar climbed.
The S&P 500 extended losses as Anthony Fauci, the nation’s top infectious disease official, said states reopening too quickly could “set you back on the road on trying to get economic recovery.” Traders also assessed comments from central bank officials, who cited the risk of potential of massive bankruptcies that could create a lasting scar.
The Fed could curtail Wall Street banks’ ability to pay dividends by cranking up the amount of capital they need to maintain due to the coronavirus crisis, Fed board member Randal Quarles said Tuesday.
“You will get business failures on a grand scale, and you will be taking risks that you would go into depression” if shutdowns persist, Federal Reserve Bank of St. Louis
President James Bullard said in a video speech from that city Tuesday. Minneapolis Fed President Neel Kashkari warned of a “gradual, muted recovery” from the outbreak, while Dallas Fed President Robert Kaplan said the economy will need more fiscal stimulus if the jobless rate continues to rise.
The disastrous fallout of business closures and stay-at-home orders caused an unprecedented 20.5 million job losses in April, tripling the unemployment rate to 14.7%, the highest since the Great Depression of the 1930s.
A key measure of U.S. consumer prices declined last month by the most on record. A sustained trend of declining prices would spur worries about deflation, exacerbating concern that the recovery from the deep economic downturn will be very slow.