Wall Street Suffers Worst Rout Since Black Monday as Virus Response Eludes Washington

WASHINGTON — Financial markets plunged again on Thursday, with Wall Street suffering its biggest one-day drop since the Black Monday stock market crash in 1987, as Washington struggled to reach agreement on how to respond to the growing economic threat posed by the spread of the coronavirus.

The Federal Reserve, in a drastic attempt to ensure Wall Street remained functional as volatility roiled even normally staid bond markets, said it would promptly inject as much as $1.5 trillion in loans into the banking system and broaden its purchases of Treasury securities. But neither the Fed’s actions, nor a plan by the European Central Bank to offer cheap loans to banks and step up its bond-buying campaign, were enough to assuage investors, who sent the S&P 500 down 9.5 percent.

The Wall Street rout only increased pressure on Congress and the White House to hammer out a relief package that would provide assistance for people affected by the virus and the resulting economic disruption. With Republicans and Democrats sparring over what to include in the package, Senator Mitch McConnell, the majority leader, reversed course on Thursday and canceled a planned one-week recess, saying the Senate would meet next week and be ready to consider a compromise coronavirus relief bill.

President Trump, for his part, appeared to be scrambling to persuade the public that things were going smoothly, while suggesting he could further restrict travel. Speaking at the White House, Mr. Trump said he could conceivably ban domestic travel to regions of the United States where the coronavirus becomes “too hot.”

Schools across the country, including in Ohio and Maryland, announced they would shut for several weeks, while students at dozens of colleges and universities packed up and headed home for the foreseeable future.

He defended the move, saying, “They have some hot spots that are really bad, but they’ll get them better. Germany, I guess, has some problems now.”

“France has some problems — some pretty big problems,” he added. “And Italy, of course, is probably record-setting in terms of what they’ve gone through. Italy is having a very hard time. But we will reestablish very quickly once this ends, and it’s just a question of time.”

The administration’s approach has sown confusion at home, with conflicting messages emanating from the White House and health officials as well as from individual government agencies.

In a meeting at the White House, Mr. Trump sought to play down the pandemic and its effects on the financial markets, saying, “It’s going to work out fine.” He insisted that, “Frankly, the testing has been going very smooth,” even as the government’s top infectious disease expert, Dr. Anthony Fauci, was on Capitol Hill acknowledging to lawmakers that “it is a failing — let’s admit it.”

Cabinet officials have been waiting for the Office of Management and Budget and the Office of Personnel Management to send out official guidance addressing changes to telework policies, when to impose mandatory telecommuting, whether to reconsider hosting meetings and gatherings, and whether to cancel travel — guidance that would allow them to change their own policies.

At the Justice Department, a sprawling bureaucracy with offices in several buildings, Attorney General William P. Barr sent an email to all staff last week saying that he was monitoring the fast-moving situation, and managers have been empowered to allow optional telework depending on immediate risk factors.

The lack of a clear, consistent response in the United States has only fueled the market sell-off, and this week the messiness extended to even the safest bonds, putting financial functioning at risk and prompting the Federal Reserve Bank of New York to take significant steps on Thursday to show markets that it has their backs. The New York Fed increased the size of its repurchase operations — basically short-term loans to banks — by $1.5 trillion through Friday, added to its weekly repurchase offerings, and shifted its Treasury purchases so that they extend across durations instead of focusing on shorter-term bills.

The package was meant to calm Treasury markets, where conditions had deteriorated in recent days, in part by making sure that as banks take bonds onto their balance sheets, they can have access to the funding they need to cover those positions. That the Fed is now buying across a range of maturities could help relieve pressures across the market.

But investors, along with the public, appear inconsolable and desperate for Congress to unleash aid that could help either stop the spread of the virus or at least buffet an economic hit that is threatening to tip the United States into recession.

“Until there are details on the steps that leadership intends to pursue to remedy the economic effects of the viral outbreak, equity markets will be vulnerable,” said Carl Tannenbaum, the chief economist at Northern Trust.

Mr. McConnell’s decision to cancel recess averted what had been shaping up as a remarkable collapse of talks. House Democrats scheduled a Thursday vote on their own package of paid sick leave, enhanced unemployment insurance, free coronavirus testing and food aid. Senate Republicans, who are opposed to that measure, faced the prospect of leaving Washington having taken no action to address the widening crisis.

Treasury Secretary Steven Mnuchin, in a frantic attempt to keep talks on track, spoke by phone at least seven times with Speaker Nancy Pelosi, negotiating additional changes to the House legislation so that it could have a chance of winning the support of Mr. Trump and Senate Republicans.

As of Thursday afternoon, major sticking points were hampering agreement, according to people familiar with the deliberations, who described them on the condition of anonymity. Republicans balked at a sweeping proposal to provide paid sick leave, something Senate Republicans had already blocked when Democrats sought earlier in the week to bring up a separate bill. And Republicans were insisting on inserting language into the emergency package to ban federal funding for most abortions.

Mr. McConnell started the day denouncing Ms. Pelosi’s plan as an “ideological wish list” and indicating that the Senate had no intention of moving ahead with it. But as negotiations proceeded, he faced mounting complaints from Republican senators — including those facing challenging re-election races — who opposed the House Democrats’ plan but were reluctant to leave Washington without voting on something to address the crisis.

“A haphazard bill thrown together overnight?” Senator Joni Ernst, Republican of Iowa, told reporters on Thursday. “We need to be thorough about it.”

“The Senate has no business leaving,” Senator Sherrod Brown, Democrat of Ohio, said in a speech on the floor. “We shouldn’t leave town until we pass the House package to help workers and support our communities, and President Trump needs to sign it. We need to do our jobs.”

Senators left Washington on Thursday afternoon planning to return on Monday, even as the coronavirus took its toll on the Capitol, prompting more lawmakers to quarantine themselves and close their offices. (During senators’ final vote before their departure, a page could be seen wiping down members’ desks and chairs with disinfectant.)

In the absence of a detailed economic rescue plan from the White House, Ms. Pelosi has pressed forward with a package of her own that leading Republicans have panned as ineffective, overreaching and too costly. Representative Kevin McCarthy of California, the minority leader, said on Thursday that Republicans had problems with the bill’s paid sick leave proposals and believed it should include other measures, like tax credits for employee retention.

“We should not just take a rush just because there is a bill,” Mr. McCarthy said. “We want to make sure it works.”

He added, “I think we can get this done in 24 or 48 hours.”

Ian Shepherdson, the chief economist at Pantheon Macroeconomics, said in a research note on Thursday that it was “up to Congress to fire the fiscal bazooka, the bigger and quicker the better.”

But in an interview, Mr. Shepherdson warned that even a large stimulus package might not stop the fall in markets, and that the worst may still lie ahead.

“What stops the fear is evidence that the rate of increase of infections is slowing — believable evidence,” he said. “Everywhere you would look for reassurance, for leadership, for policy action, for reliable information — all are absent.”

Reporting was contributed by Katie Benner, Nicholas Fandos, Alan Rappeport and Sheryl Gay Stolberg from Washington; Matt Phillips, Melena Ryzik and Ben Sisario from New York; and Brooks Barnes and Andrew Knoll from Los Angeles.

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