Powell wonders if federal policy response is ‘enough’

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TOP LINE

Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell met with the Senate Banking Committee on Tuesday to answer questions about their role in managing $ 500 billion in funding for the bailout loans. emergency.

HIGHLIGHTS

The hearing comes the day after a congressional oversight committee find that the Treasury Department has spent very little of a $ 500 billion fund designed to help businesses and local governments weather the crisis.

The Treasury did not distribute any of the $ 46 billion allocated to struggling airlines or other industries, for example, and very little of the remaining $ 454 billion, intended to support Federal Reserve lending programs, have been spent.

In his prepared remarks, Mnuchin, who will no doubt be faced with questions about his handling of the besieged Paycheck Protection Program, highlighted Treasury spending so far: “We have committed up to $ 195 billion in credit support under the CARES Act,” he said, adding that it was fully prepared to allocate all of that $ 500 billion.

Mnuchin also addressed the issue of the Treasury Department assuming a certain level of risk in loan support: “We are quite prepared to take losses” in certain scenarios, he said. declared.

Comments come in the middle growing concern that the Federal Reserve and the Treasury have been too cautious in deploying rescue capital because they are trying to avoid losing money.

In his prepared statement, Powell highlighted the changes the Fed has made to its lending programs for develop the pool of eligible candidates.

Powell also said he believed the Fed’s $ 600 billion Main Street Loan Program, designed for small and medium-sized businesses struggling due to the coronavirus downturn that are not eligible for PPP or the Economic Disaster Lending Program, will be up and running by the end of the month.

Mnuchin warned of the “risk of permanent damage” if state economies remain closed for too long; in his previous testimony, he pleaded for people to return to work “safely”.

President Powell reiterated Mnuchin’s comment, echoing a statement he made during an interview with “60 Minutes” over the weekend as he warned that more policy measures may be needed to offset the lasting economic damage that prolonged unemployment can cause.

Powell also hinted that the Fed may expand its emergency municipal bond purchase program – before the crisis, the Federal Reserve had never bought municipal bonds at all.

Key context

The CARES law, signed in law by President Trump in late March, authorized the IRS to send stimulus checks directly to Americans. He established the Paycheck Protection Program, a $ 350 billion program administered by the Small Business Administration to provide forgivable loans to cover salary and overhead expenses, intended to prevent family stores from closing their operations. doors. The CARES Act also provided for a $ 500 billion business bailout fund, expanded unemployment benefits, support for hospitals and health care providers, and $ 150 billion for state and local governments.

Large number

According to Mnuchin, the federal government has distributed more than $ 1 trillion in aid under the CARES Act.

Crucial quote

“It’s the biggest shock we’ve seen in living memory,” said Powell. Of the massive spending by the government – nearly $ 3 trillion in rescue programs, he said, “The question hangs in the air: is it enough?

What to watch

Lawmakers are likely to pressure the two officials over the need for even greater spending on top of existing relief programs. Last week, another $ 3 trillion stimulus package was narrowly passed by the House of Representatives, but the bill is likely to face strong opposition from wary Senate Republicans. any additional expenses.

Further reading

Full economic recovery unlikely without coronavirus vaccine: Fed Chairman Powell (Forbes)

With another $ 3 trillion stimulus package in play, here’s everything the government has done to save the economy so far (Forbes)

House passes $ 3 trillion coronavirus stimulus, but that doesn’t mean more checks are coming (Forbes)

Here’s how likely you really are to get another $ 1,200 stimulus check (Forbes)

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