Good morning! Was this email forwarded to you? (Today's Smart Brevity count: 1,262 words, 4.7 minutes.)
🎙 "I've been stacking my karma, Nefertiti, no drama. Make a feminist planet, women haters get banished. Covered up or not, don't ever take us for granted." See who said it and why it matters at the bottom.
Illustration: Aïda Amer/Axios
The world's most powerful central banks made clear this week that they expect the economic damage from the COVID-19 pandemic to be deep and long-lasting and they are arming themselves for war.
Driving the news: After announcing Wednesday that it would do whatever it takes and then some to buoy the U.S. economy, the Fed unveiled a beefed-up new version of its $600 billion Main Street Lending Program that will effectively shred parts of the 1913 Federal Reserve Act (with authorization from the Treasury Department).
Why it matters: We are entering an uncharted era of central banking that will see the Fed and its peers lend money directly to businesses, take unprecedented risks and directly support tremendous portions of the global economy.
The big picture: Central banks were established to keep inflation in line and to use their lending powers only to purchase assets backed by their governments.
The bottom line: This is not what central banks were designed to do, but in the face of this historic economic shock and in the absence of clear alternatives, it is what they are doing.
While business owners have largely praised the federal government's fast response and the good intent of the CARES Act, it has left much to be desired.
What it means: With the Small Business Administration overwhelmed by demand and many small business owners unable to access funding, PPP has been plagued by bad news since even before it launched.
Where it stands: "PPP was the right idea but it was intended to be a short-term measure and really needs structural changes that can, in addition to a major infusion of resources, give travel businesses and their workers a real chance to survive," Tori Barnes, executive VP of public affairs and policy at the U.S. Travel Association, said during a media briefing Thursday.
Between the lines: By reducing the size of the loans it offers (which unlike PPP loans cannot be forgiven), the Fed's Main Street program allows medium-sized businesses direct access to its seemingly bottomless supply of cheap capital through financial institutions that take on, at most, 15% of the risk while the central bank shoulders the rest.
Of note: The Fed also is buying PPP loans to clear them from bank balance sheets and allow more lending.
The PPP initially made headlines for leaving out many small businesses who were muscled out by large corporations and savvier peers with long banking histories, but now even those who secured the funding say the program needs to be overhauled.
Driving the news: "It’s difficult to successfully use the Paycheck Protection Program loan," Jackie Victor, founder and owner of Detroit's Avalon Breads, writes in an op-ed for the New York Times.
Details: The CARES Act increased eligibility for unemployment benefits, provided an additional $600 per week and extended insurance payments beyond the typical 26 weeks.
The White House threatened to add more tariffs on U.S. companies that import Chinese products as a means of retaliation for the COVID-19 outbreak. (Reuters)
The American intelligence community believes the COVID-19 virus that originated in China was not manmade or genetically modified. (Reuters)
The number of Americans filing initial unemployment claims hit 3.84 million last week, bringing the rolling six-week total to 30.3 million. (CNBC)
Amazon saw its profits shrink last quarter and CEO Jeff Bezos warned the company was seeing “the hardest time we’ve ever faced.” (Bloomberg)
The Fed has not yet begun buying corporate bonds through its announced special facilities, but just by announcing plans to take action has sparked rallies in bonds across the spectrum and improved market functioning.
Yes, but: "The Fed’s aggressive actions have benefited the markets in the short term. Longer term, however, we think there will be downgrades, defaults, and bankruptcies, particularly among companies that came into the downturn with high leverage," warns Ruta Ziverte, head of fixed income for William Blair.
What's happening: More than $120 billion of investment grade bonds have been downgraded to junk status this year, and approximately $300 billion of the lowest rated investment grade bonds are on watch for downgrades or have negative outlooks, Ziverte notes.
The Fed's programs also helped spark a rally in equity prices, and the S&P 500 had its best month since 1987 in April.
By the numbers: Investors sold $7 billion worth of equity mutual funds for the week ending April 29, according to data from Lipper, and $1.5 billion worth of equity ETFs. An ETF that tracks the S&P 500 saw the largest outflows of the week, with $4.8 billion of redemptions.
The big picture: April was a historic month for money market funds, data from the Investment Company Institute show.
Quote: "I've been stacking my karma, Nefertiti, no drama. Make a feminist planet, women haters get banished. Covered up or not, don't ever take us for granted."
Why it matters: The line is from rapper Mona Haydar's 2017 certified banger "Hijabi (Wrap my Hijab)."