Illustration: Sarah Grillo/Axios

Coronavirus is already the most serious threat to the U.S. economy since the financial crisis, and the dominoes are aligned for a severe recession that could erase much of the 11-year recovery.

What's happening: While the outbreak itself is unlikely to drive an economic collapse, the U.S. has been something of a ticking time bomb for some time.

  • Growth has declined over the last two years despite higher government spending and a $23.4 trillion national debt.
  • While the labor market has boomed, many of the jobs added have been hourly service-industry positions that offer limited scope for savings or health insurance.
  • 44% of all U.S. workers earn barely enough to live on, a Brookings Institution study found in January.

Where it stands: While President Trump said late Monday that he would work with Senate Republicans on a "very substantial" payroll tax cut and relief for hourly workers, such measures — if they can be enacted — could still be insufficient to fend off a recession.

At the same time, corporate America is more heavily indebted than ever before, due to years of record-low interest rates and increased borrowing.

  • The Federal Reserve has repeatedly warned that this spike in leveraged lending — combined with loosening covenants — has created risks not only to bond issuers, but also to the wide network of hedge funds and mutual funds (yes, mutual funds) that actually hold the debt.
  • In short, it's an economic haystack awaiting a match.

One big difference between 2020 and 2008 is breadth. The financial crisis began with financial services companies and insurers, which meant bailouts and structural fixes could be aimed at Wall Street. But this crisis is hitting the entire economy with a single blow — harming not just the Fortune 500, but also mom-and-pop businesses.

Between the lines: The cavalry may not be coming to the rescue this time.

  • The Federal Reserve, which helped rescue the economy after the 2008 crisis, is effectively out of ammunition.
  • Starting in 2007, the Fed cut interest rates by 500 basis points, bought an unprecedented amount of U.S. debt and unleashed a flurry of stimulus programs that propped up the economy.
  • Rather than winding them down, the Fed has had to extend the programs throughout the recovery.
  • As a result, after last week's emergency rate cut — and possibly another that's expected at next week's policy meeting — the central bank has limited ability to take action.

Threat level: Government also increasingly looks broken. The dysfunction in Washington is dimming hopes for major fiscal stimulus that economists say will be needed to offset the outbreak's negative impact.

  • The $8 billion allotted to coronavirus so far "is an insult," Claudia Sahm, who formerly served as top economist for the Fed's Board of Governors, tells Axios. "It has to be hundreds of billions of dollars, and it has to be now."
  • "I want to see it — and maybe I will," Sahm, now director of macroeconomic policy at the Washington Center for Equitable Growth, says. "But without that piece, we are in a recession before the end of the year."

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Updated 32 mins ago - Politics & Policy

Coronavirus dashboard

Illustration: Aïda Amer/Axios

  1. Global: Total confirmed cases as of 7:30 p.m. ET: 13,258,016 — Total deaths: 576,752 — Total recoveries — 7,366,845Map.
  2. U.S.: Total confirmed cases as of 7:30 p.m. ET: 3,416,222 — Total deaths: 136,319 — Total recoveries: 1,049,098 — Total tested: 41,764,557Map.
  3. Politics: Biden welcomes Trump wearing mask in public but warns "it’s not enough"
  4. Public health: Four former CDC heads say Trump's undermining of agency puts lives at risk — CDC director: U.S. could get coronavirus "under control" in 4–8 weeks if all wear masks.

Bank CEOs brace for worsening economic scenario

JPMorgan CEO Jamie Dimon. Photo: J. Lawler Duggan/For The Washington Post via Getty Images

Wells Fargo swung to its first loss since the financial crisis — while JPMorgan Chase and Citigroup reported significantly lower profits from a year earlier — as the banks set aside billions of dollars more in the second quarter for loans that may go bad.

Why it matters: The cumulative $28 billion in loan loss provisions that banks have so far announced they’re reserving serves as a signal they’re preparing for a colossal wave of loan defaults as the economy slogs through a coronavirus-driven downturn.

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Moderna's stock rose 16% after hours on this news. Photo: Jakub Porzycki/NurPhoto via Getty Images

Healthy volunteers who took Moderna's coronavirus vaccine candidate appeared to generate an immune system response to the virus, and there were "no trial-limiting safety concerns," according to a new study published in the New England Journal of Medicine.

Why it matters: The phase one trial is still small and does not definitively determine how effective the vaccine is. But Anthony Fauci of the National Institutes of Health, which is running the trial, told the Wall Street Journal that these data make it "pretty clear that this vaccine is capable of inducing quite good [levels] of neutralizing antibodies."