Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell have worked hand in hand to soften the economic devastation wrought by COVID-19, but they don’t appear to see eye to eye on the potential for a quick recovery and how soon additional support will be needed.
The pair testified Tuesday before the House Financial Services Committee on the hundreds of billions of dollars spent so far to keep the economy alive during the pandemic and hinted at what each sees as necessary next steps.
Powell urged Congress to continue supporting the economy, specifically by extending increased unemployment benefits, supporting small businesses, and helping state and local budgets ravaged by the coronavirus.
“The path forward will also depend on the policy actions taken at all levels of government to provide relief and to support the recovery for as long as needed,” he said.
“The CARES Act and other legislation provide direct help to people, businesses, and communities,” Powell added, referring to the roughly $2 trillion rescue package enacted in March. “This direct support can make a critical difference not just in helping families and businesses in a time of need, but also in limiting long-lasting damage to our economy.”
Mnuchin, however, sounded a far more optimistic note, even as spikes in COVID-19 cases have again begun shutting down businesses in states that had started to reopen.
“America’s economy continues to recover from the challenges posed by the COVID-19 pandemic,” he said. Mnuchin, who has been the White House’s lead negotiator on COVID-19 relief legislation, reiterated that the administration would look to pass another bill with Congress in July.
Powell warned that the direction of the economic crisis will follow the path of the health crisis, which now sees rising case levels and hospitalizations across the nation.
“Hypothetically, a second outbreak would force governments and force people to withdraw again from economic activity,” he said with the caveat that he was not forecasting a second outbreak. “I think the worst part of it would be to undermine public confidence, which is what we need to get back to lots of kinds of economic activity that involves crowds.”
Some of the economic lifelines extended in March will be withdrawn soon without congressional action, leaving the risk that workers and businesses may be left adrift during legislative negotiations that will soon have to compete for lawmakers’ attention with the annual appropriations process, debates over police reform and the election.
The extra weekly $600 in unemployment benefits will stop at the end of July. The popular Paycheck Protection Program will end Tuesday evening with more than $135 billion left in potential loan authority.
Mnuchin said the next round of loans would use that money to provide additional relief for small businesses particularly hard hit by the crisis.
“As it relates to the PPP, I’ve already had conversations with the Small Business Committee in the Senate, about repurposing that $135 billion and think that should be done, and look forward to working with both the House and the Senate so that we can pass legislation by the end of July,” Mnuchin said.
The money would go to companies that have seen their revenue drop significantly “like restaurants and hotels,” Mnuchin said. Any law providing another direct payment to taxpayers like the $1,200 in the March bill should prevent banks from garnishing those funds to cover outstanding debts, he said.
“We agree, from a policy standpoint, that there should have been no garnishment,” Mnuchin said. “Unfortunately, that's something we need to address in the next CARES Act if we do additional direct payments, because there are certain state laws that were not overridden in the existing CARES Act.”
The Treasury Department and Fed are coordinating their actions closely. The Fed has opened 11 emergency lending facilities backed with department funds. So far, $195 billion of the $454 billion Congress gave them in March has been deployed to absorb losses from companies that may fail despite the government’s support.
The Fed’s lending facilities are meant to give firms enough credit to weather the slump caused by the pandemic. They work by either calming financial markets and encouraging private lending or by providing credit directly.
The Fed’s ability to do more to spur growth with money policy is limited. Cutting rates and purchasing assets provides low-cost funds, but company’s aren’t likely to use it if they see little prospect of more business. Right now, the pandemic casts a pall over any such rosy expectations.
Congress is likely to have more influence with fiscal policy. Direct government spending increases demand for goods and services.
Powell said he sees the Fed’s job to “directly support the flow of credit to households, to businesses of all sizes, and to state and local governments,” not to bail them out.
Powell said the Fed would respond to economic conditions in tweaking the emergency lending facilities it has created. He said 300 banks so far have signed up for the Main Street Lending Facility aimed at providing credit to companies too large for the PPP but too small to access the bond markets.
Mnuchin resisted calls to reduce the minimum Main Street loan size from $250,000, saying any smaller would change the nature of the program.
Panel members tossed softer questions at the pair than was typical before the crisis.
House Financial Services Chairwoman Maxine Waters, D-Calif., praised Mnuchin, whom she has feuded with at past hearings, for his work during the crisis and responsiveness to her requests. Other senior members from both parties were similarly effusive during the two-hour hearing.
But not every member of the committee was as sanguine.
Rep. Katie Porter, D-Calif, has used viral videos of her grilling administration officials to fuel her rise as a fundraising powerhouse. But the shortened length of the hearing meant freshmen members didn’t get a chance to ask questions Tuesday.
Porter took Twitter to complain. “Funny how our full committee hearings with [Mnuchin] never have enough time for every Member of Financial Services to take a turn,” she wrote, tagging Mnuchin in the post. “I have questions, and I want answers.”
She might get her chance before long: Tuesday was just the first quarterly hearing required under the law passed in March.