Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven T. Mnuchin on Tuesday told Congress they still have tools to prop up an economy reeling from the coronavirus crisis.
Mr. Powell said the jury is out on whether Congress should approve more emergency spending on top of the nearly $3 trillion already out the door. Mr. Mnuchin said the federal government is prepared to take financial losses to get new lending programs for small businesses up and running by June.
Mr. Powell and Mr. Mnuchin delivered the financial gut check to the Senate Banking Committee’s oversight hearing on the $2.2 trillion economic rescue package Congress approved in March.
“We are committed to using our full range of tools to support the economy in this challenging time even as we recognize that these actions are only a part of a broader public-sector response,” Mr. Powell told the panel in prepared testimony.
The central bank chairman was asked about his recent comments that now is not necessarily the time to be concerned about national debt because the country is in such dire financial straits.
“I said we may need to do more, and Congress may as well,” Mr. Powell said.
The coronavirus crisis has caused more than 90,000 deaths in the U.S. as the shutdowns to blunt the spread of the virus ravages the economy, knocking more than 36 million Americans out of work.
Both Mr. Powell and Mr. Mnuchin warned of lasting economic damage if the dismal unemployment and economic numbers persist, though Mr. Powell said the Fed is limited on potential remedies.
“We have lending powers — not spending powers,” he said. “What Congress has done to date has been remarkably timely and forceful. I think we could say the same about what we’ve done.”
In addition to its emergency lending programs, the Fed cut its target interest rate to near zero in March.
“I do think we need to take a step back and ask, over time, is it enough? And we need to be prepared to act further,” Mr. Powell said.
The hearing largely dealt with a new $500 billion stabilization fund intended to support Federal Reserve programs, including the “Main Street Lending Program” for small and medium-sized businesses and a program to purchase short-term debt from cash-strapped states, cities and counties.
A congressional report released on the eve of the hearing found that Treasury has disbursed only $37.5 billion of the available funding, though Mr. Mnuchin said the department has committed about $200 billion in credit support so far.
“The only reason I have not allocated it fully is we are just starting to get these facilities up and running,” he said. “I expect to allocate all the capital as needed, as was given to us.”
The Main Street lending and municipal programs should be up and running by next month, on top of a half dozen other new lending facilities the Fed announced in recent weeks, he said.
The secretary acknowledged there is a risk to taxpayers anytime the Federal Reserve thinks they need an infusion of capital.
“There [are] scenarios within Main Street where we could lose all of our capital and we’re prepared to do that. There are scenarios where the world gets better and we could actually make a small amount of money,” he said. “Our intention is that we expect to take some losses on these facilities.”
The best-case scenario would be that the financial markets open up to the point where the programs won’t be necessary.
Mr. Powell committed to monthly disclosures of the names and details of participants using the various programs.
“We are deeply committed to transparency, and recognize that the need for transparency is heightened when we are called upon to use our emergency powers,” he said.
The Federal Reserve last month announced changes to the Main Street lending program so that businesses with up to 15,000 employees or up to $5 billion in annual revenue are eligible, compared to the initial limits of 10,000 employees and $2.5 billion in revenue.
The minimum loan size for two of the program’s three options was also lowered from $1 million to $500,000 to pull in more small and medium-sized businesses.
Sen. Elizabeth Warren, Massachusetts Democrat, pressed Mr. Mnuchin on whether companies receiving the loans will be required to keep people on their payroll.
“In the Main Street facility, we have put in a provision that we expect people to use their best efforts to support jobs,” Mr. Mnuchin said, noting that there are “significant restrictions” on compensation, dividends and stock buybacks.
He pushed back strongly when Ms. Warren accused him of trying to use the funds to boost his “Wall Street buddies” when more than 30 million Americans are out of work.
“I think that’s a very unfair characterization,” he said, noting that the issues she raised received significant input from both Republicans and Democrats. “You were not necessarily a part of those discussions, but these were completely discussed.”
The $500 billion fund is different from the highly publicized Paycheck Protection Program or PPP, which was also part of the $2.2 trillion rescue bill.
Mr. Mnuchin said the government has processed about 4 million PPP loans totaling more than $530 billion.
Congress included about $350 billion for the program in the legislation that passed in March, then replenished the depleted funding in a subsequent $484 billion emergency package.
The PPP loans for small businesses would be forgiven if companies use the money to keep employees on their payroll.
While popular, the program has been plagued by technical glitches as businesses raced to try to secure the money.
Some small businesses have said they’ve been left out in the cold, while major chains such as Ruth’s Chris Steak House and Shake Shack managed to secure millions of dollars’ worth of loans — money that the companies returned after significant public outcry.
President Trump on Monday met with restaurant executives who say they want the eight-week period in which companies have to spend the money for the loans to be forgiven extended to 24 weeks.
Mr. Mnuchin suggested that Congress should pass a “bipartisan technical fix” that would extend the time frame.
“They don’t want more money, but want flexibility that they can use it in longer than in [an] eight-week period,” he said.
House Democrats did extend the timeline in the $3 trillion rescue package they passed last week, but the White House and Senate Republicans say they’re opposed to the broader bill.
Mr. Mnuchin also said if a worker declines an offer from a company to hire him or her back, the person would no longer be eligible for unemployment benefits.
The Trump administration has cheered on states that are gradually reopening their economies, but Mr. Mnuchin bristled at the notion that the administration accepts sending people back to work to face needless health risks.
“You’re pushing people back into the workplace, there’s been no national program to provide worker safety,” said Sen. Sherrod Brown of Ohio, the top Democrat on the committee. “How many workers should give their lives to increase the GDP or the Dow Jones by a thousand points?”
“No workers should give their lives to do that, Mr. Senator, and I think your characterization is unfair,” Mr. Mnuchin replied.
• David Sherfinski can be reached at dsherfinski@washingtontimes.com.
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