Mnuchin, Powell Say Fed Programs Are Serving Their Purpose, Urge More Spending -- Update
By Nick Timiraos and Kate Davidson
The two top U.S. economic officials told lawmakers that
emergency loan programs to support the coronavirus-stricken economy
were largely working as intended and that more government spending
would be needed to sustain the recovery.
Treasury Secretary Steven Mnuchin said he didn't anticipate
further changes that would ease access to loan programs established
jointly with the Federal Reserve. "I unfortunately think there's
not much more we can do," he told the House Financial Services
Committee on Tuesday.
Mr. Mnuchin and Fed Chairman Jerome Powell faced questions from
lawmakers who wanted to know why more couldn't be done to adapt the
central bank's emergency loan programs to help hard-hit businesses,
including the commercial real-estate sector, or city and state
Their answers suggested they believed those loan programs had
done what they could to preserve favorable financial conditions for
eligible borrowers and that what many would-be borrowers need now
are grants, which would require new funding from Congress, as
opposed to loans from the Fed.
Mr. Powell said the economic rebound that began in May had been
sustained in part with the $2.2 trillion relief measure Congress
approved in March, which included more generous unemployment
benefits and grants to small businesses.
"It deserves a lot of credit for keeping people spending," said
Mr. Powell. "It is likely that more fiscal support will be
Their testimony came as the nation marked another grim milestone
with more than 200,000 deaths from the new coronavirus, and as
congressional Democrats and Republicans remained at an impasse over
another round of stimulus spending.
Congress in March authorized $454 billion for the Treasury to
backstop losses in Fed lending programs, and Mr. Mnuchin authorized
$195 billion for five different lending programs.
The Treasury secretary said Tuesday he didn't see a need to use
the remaining $259 billion and supported repurposing $200 billion
of those funds for other spending programs. Mr. Powell wasn't asked
whether he would support reallocating those funds.
The five lending programs the Fed and Treasury established using
congressional funding would theoretically allow for nearly $3
trillion in new borrowing. The Fed has extended less than $20
billion in such loans.
In some cases, such as the $600 billion Main Street Lending
Program for small and midsize businesses, low uptake reflects
complications the Fed and Treasury encountered launching the
program and enticing banks and borrowers to use it. For others,
lower volumes reflect the success the mere announcement of the Fed
backstops have had in spurring private investors to buy assets.
While around half of the 22 million jobs lost in March and April
have been recovered, Mr. Powell said he was concerned about the
number of Americans that were likely to remain out of work until
vaccines made it possible for a complete recovery in sectors such
as entertainment and lodging that have been most disrupted by the
"We still have 11 million people out there" without jobs, Mr.
Powell said. "There is a lot of work to do there."
Mr. Powell said he thought the economy would eventually feel
negative effects of fiscal relief measures that expired this
The nature of the pandemic, which has boosted demand for certain
goods and services while severely restraining others, has also
created novel challenges for the economic-stabilization policy the
Fed typically provides in a downturn.
The Fed cut rates to near zero in March and purchased trillions
of dollars of securities after the coronavirus pandemic threatened
to touch off a financial panic.
But with short- and long-term interest rates at historically low
levels, the Fed could have fewer tools to spur a recovery than it
did after the 2008 financial crisis.
Referring to monetary and fiscal policy, Mr. Powell said
Tuesday, "The recovery will go faster if we have both tools
continuing to work together."
Members of both parties have criticized the Main Street program
for low lending volume. The program has around 230 loans worth
around $2 billion that have been made or are in process, Mr. Powell
Democrats, meanwhile, expressed frustration that a separate $500
billion loan program for state and local government borrowing has
resulted in only two loans. "This is unacceptable," said Rep.
Maxine Waters (D., Calif.), chairwoman of the House Financial
Services Committee. "This pandemic response has fallen badly
Mr. Powell told lawmakers the government could reach hard-hit
industries and workers more readily with additional grants.
Lowering the minimum loan amount for Main Street loans to $100,000
from $250,000, for example, wasn't likely to make a big difference
because the program hasn't attracted significant interest from
borrowers seeking loans of less than $1 million, Mr. Powell
Write to Nick Timiraos at firstname.lastname@example.org and Kate
Davidson at email@example.com
(END) Dow Jones Newswires
September 22, 2020 15:39 ET (19:39 GMT)
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