Several programs aimed at extending emergency funding to businesses and governments are ending — but we’re not out of the woods yet, according to Capitol Hill testimony from Federal Reserve Chairman Jerome Powell and Treasury Secretary Steve Mnuchin.
Much, of course, depends on the course of the pandemic, but small business aid should remain in consideration by lawmakers, they said.
The testimony came against a Washington backdrop where, separately, a group of senators, bipartisan in scope, unveiled a stimulus plan worth more than $900 billion.
The joint appearance by Powell and Mnuchin before the Senate banking committee on Tuesday (Dec. 1) came as some central banking lending vehicles are set to expire at the end of the month, and where the Fed must return unused funds. In previous commentary, Mnuchin has said it should now be up to Congress to decide how (or if) to deploy that money, which amounts to nearly a quarter of the money from last spring’s $2 trillion-plus CARES Act, or $455 billion. Conversely, the Fed has stated that the emergency facilities remain in place.
In his prepared remarks, Mnuchin said, “I strongly encourage” Congress to use the $455 billion in thus-far unused funds from the CARES Act to “pass an additional bill with bipartisan support.”
He noted that there is “more work to be done” even as the third quarter GDP growth rate, at 33.1 percent on an annualized, topped previous records and 58 percent of the jobs lost during the pandemic have been regained.
Powell said in his opening statement that “household spending on goods, especially durable goods, has been strong and has moved above its pre-pandemic level. In contrast, spending on services remains low largely because of ongoing weakness in sectors that typically require people to gather closely, including travel and hospitality.”
Stimulus payments have helped lift household spending, he said. But there remains a long road to travel as the economic outlook is “uncertain.” He noted during questioning from the panel that it would be difficult to say how long it would take to realize a full economic recovery without additional action, as 10 million people are still without jobs — “more than lost their jobs during the global Financial crisis in the United States.”
As for Fed-specific actions, he said, efforts have “helped unlocked almost $2 trillion of funding to support businesses large and small, nonprofits, and state and local governments since April. This, in turn, has helped keep organizations from shuttering and has put employers in both a better position to keep workers on and to hire them back as the economy continues to recover.” The flow of credit from private lenders has been restored through normal channels, he said.
As to returning the funds that have been left untouched (through programs such as the Main Street lending facility), Mnuchin stated that “the statute was very clear,” adding that “I find it implausible” that members of the Senate committee, “believed that in voting for the CARES Act you were authorizing me to invest $500 billion to make loans in perpetuity.”
He stated, though, that some verticals, such as restaurants, are in need of further funding, and urged Congress to authorize another $300 billion for the Paycheck Protection Program (PPP) and for smaller firms, stating that restaurants in particular “need grants, they don’t need loans.”
Powell noted that there are a significant number of small businesses at risk of going out of business over the near term. (But in the medium term, as vaccines are coming to market in the next few months, there is “upside risk.”)
During the question-and-answer session with lawmakers, Ohio Democrat Sen. Sherrod Brown told Mnuchin, “I appreciate what you said about restaurants” but added that smaller businesses have been disproportionately impacted by the pandemic, millions of Americans remain out of work and “all the numbers are going in the wrong direction.”
He directed questions to Powell that focused on workers’ not being left behind. Powell pledged that the Fed would use “all of its tools” for as long as necessary “to get us through this period.” He reiterated the goal of maximum employment, which cited as the “goal [Congress] has set for us.”
Separately, Pat Toomey, Republican senator from Pennsylvania, contended that the stimulus and lending programs worked as intended and opened up credit markets; the announcement of the programs’ ends “brought absolutely no disruption to the markets.”
He said that some observers might say it is important to “keep some facilities around because some bad things may happen in the future — but it’s always been the case that you can imagine some bad thing happening in the future.” If there loom some future threats to markets, then the Treasury and Fed should come back to Congress and ask for facilities at that time.
In reference to hard-hit industries like travel and hospitality, Toomey said, it is up to Congress, and not the Fed, to lend money to “what are probably insolvent companies. Let’s be clear: These facilities were designed for a specific purpose. They achieved that purpose more than we could have reasonably hoped” and should not act as a supplement or complement to fiscal policy.
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