Business News Live: Elon Musk, Bitcoin and Jerome Powell

Treasury Secretary Janet L. Yellen said on Wednesday that she is grappling with a host of “thorny” issues related to a provision in the $1.9 trillion stimulus package that restricts states from using federal aid money to fund tax cuts, suggesting that the looming legal battle over the matter could be long and complicated.

At a Senate Banking Committee hearing, Ms. Yellen said her team at the Treasury Department was working on developing guidance on how the $200 billion allocated for states and cities can be used.

The Treasury Department has said the intent of the law is for the relief money to pay for matters related to the coronavirus pandemic, not to subsidize tax cuts.

But Ms. Yellen acknowledged that the issue is a “thorny” one.

“We will have to define what it means to use money from this act as an offset for tax cuts,” Ms. Yellen said. “Given the fungibility of money, it’s a hard question to answer.”

The Treasury Department has 60 days from when the law was enacted to craft guidance on how the money can be spent. Ms. Yellen said she believes that states and cities should have a lot of flexibility in how they deploy the funds.

Last week, the Ohio attorney general sought a preliminary injunction that would bar the federal government’s ability to enforce what he described as the “tax mandate.”

Several Republican governors and 21 Republican attorneys general have asked for clarification on the provision. Ms. Yellen wrote a letter to the attorneys general on Tuesday evening explaining why there are restrictions on the use of the funds. She foreshadowed the legal argument that Treasury might use if litigation moves forward.

“It is well-established that Congress may place such reasonable conditions on how states may use federal funding,” she wrote. “Congress includes those sorts of reasonable funding conditions in legislation routinely, including with respect to funding for Medicaid, education and highways.”

Senator Mike Crapo, Republican of Idaho, urged Ms. Yellen to provide clear guidance for states quickly.

“It seems to me the states are hamstrung right now. They can’t do anything,” he said.

America’s top two economic officials told senators on Wednesday that the economy is healing but still in a deep hole, and that continued government support is providing a critical lifeline to families and businesses.

Jerome H. Powell, the Federal Reserve chair, and Janet L. Yellen, the Treasury Secretary and Mr. Powell’s immediate predecessor at the Fed, are testifying before the Senate Banking Committee. Their prepared comments echoed their testimony before House lawmakers on Tuesday.

Mr. Powell said in his remarks that the government averted the worst possible outcomes in the pandemic economic recession with its aggressive spending response and super-low Fed interest rates.

“But the recovery is far from complete, so, at the Fed, we will continue to provide the economy the support that it needs for as long as it takes,” he said.

Ms. Yellen, who pushed hard for the recently-passed $1.9 trillion relief package, said that responding to a crisis with a needed surge of temporary spending without paying for it was “appropriate.”

“Longer-run, we do have to raise revenue to support permanent spending that we want to do,” she said.

She said that expanded unemployment insurance, part of the recent relief package, does not seem to be discouraging work and is needed at a time when the labor market is not at full strength.

“While unemployment remains high, it’s important to provide the supplementary relief,” Ms. Yellen said, noting that the aid lasts until the fall. She said that as the economy recovers, the aid “should be phased out.”

The Biden administration is also making plans for a $3 trillion infrastructure package. The fact that the government is spending so much, and contemplating spending more, at a time when the economy is recovering has stoked concerns about inflation among some economists and lawmakers.

Some onlookers fear that the Fed, which has interest rates at rock-bottom and is buying bonds in big quantities to help the economy, might be too slow to react to higher prices.

“I do worry that the Fed may be behind the curve when inflation inevitably picks up,” Senator Patrick J. Toomey, Republican from Pennsylvania, said during his opening remarks.

But Mr. Powell has consistently pushed back on concerns about runaway inflation, and did so again on Wednesday.

“We think the inflation dynamics that we’ve seen around the world for a quarter-century are essentially intact — we’ve got a world that’s short of demand, with very low inflation,” Mr. Powell said. “We think those dynamics haven’t gone away overnight, and won’t.”

Asked specifically about potential supply and demand mismatches — particularly in the context of a ship that had gotten stuck in the Suez Canal, but also in general as the economy reopens — he struck a similarly unconcerned tone.

“A bottleneck, by definition, is temporary,” he said.

He also batted back concerns about a recent increase in market-based interest rates. The yield on 10-year Treasury notes, a closely watched government bond, has moved up since the start of the year.

“Rates have responded to news about vaccination, and ultimately, about growth,” Mr. Powell said. “That has been an orderly process. I would be concerned if it were not an orderly process, or if conditions were to tighten to a point where they might threaten our recovery.”

The fashion retailer H&M is facing a potential boycott by millions of consumers in China after a statement by the company expressing deep concerns over reports of forced labor in Xinjiang stirred a social media storm this week.

The statement, which can be found on the website of the Swedish retailer, was posted last September after growing global scrutiny around use of Uyghur forced labor in the Xinjiang region of China.

In it, H&M said that it was “deeply concerned by reports from civil society organizations and media that include accusations of forced labor and discrimination of ethno-religious minorities” in Xinjiang and that it had ended sourcing cotton from growers in the region.

More than eight months later, and in the wake of sanctions by Western countries against China for its treatment of Uyghurs, H&M is now facing an angry online backlash from Chinese consumers. The outrage has been stoked by comments from celebrities and groups like the Communist Youth League, an influential Communist Party organization.

“Want to make money in China while spreading false rumors and boycotting Xinjiang cotton? Wishful thinking!” the group said in a post, echoing one of the People’s Liberation Army’s statements that called H&M’s statement “ignorant and arrogant.”

By Wednesday evening, at least three major Chinese e-commerce platforms — Pinduoduo, Jingdong and Tmall — had removed H&M from search results and withdrawn its products from sale, underscoring the pressures faced by foreign companies doing business in China while navigating political and cultural debates ranging from the country’s sovereignty to its checkered human rights record.

On Wednesday night, H&M China responded with a post on the Sina Weibo microblogging site, saying that the company did not “represent any political position.”

“H&M Group respects Chinese consumers as always,” the statement said. “We are committed to long-term investment and development in China.”

H&M is the world’s second-largest fashion retailer by sales, and China is its fourth-biggest market.

On Monday the European Union, United States, Britain and Canada announced sanctions on Chinese officials in an escalating row over the treatment of Uyghurs, in Xinjiang. Roughly one in five cotton garments sold globally contains cotton or yarn from the region, where authorities have used coercive labor programs and mass internment to remold as many as one million Uyghurs, Kazakhs and other largely Muslim minorities into model workers obedient to the Communist Party.

State broadcaster CCTV criticized H&M, and said that it was “a miscalculation to try to play a righteous hero.” H&M, it said, “will definitely pay a heavy price for its wrong action.”

Claire Fu contributed reporting.

Journalists at Stat, the medical and science news website lauded for its pandemic coverage, will join the Boston Newspaper Guild, union representatives said in a statement Wednesday.

Stat, headquartered in Boston, focuses on science, health and biotech journalism and has close to 40 editorial staff members. It was one of the first outlets to extensively cover the outbreak of the coronavirus in January 2020 and saw a boost in traffic and revenue in the past year as its ambitious coverage gained attention. Helen Branswell, Stat’s infectious disease reporter, won the 2020 George Polk public service award for her work covering the pandemic.

Damian Garde, a biotech reporter for Stat, said in an interview that workers hoped union protections would help make Stat an even more attractive and competitive employer.

“When people look at the Stat trajectory, they point to my colleague Helen Branswell’s very prescient coverage ahead of the…