Though unemployment is skyrocketing, the US Treasury secretary offered an optimistic outlook on the economy.
Lawmakers consider new stimulus bill
WASHINGTON: Treasury Secretary Steven Mnuchin and Federal Reserve chairman Jerome Powell presented a mixed picture of the US economy in testimony before Congress on Tuesday afternoon as lawmakers prepare for negotiations over another round of stimulus.
The joint appearance of America’s two top economic policymakers comes as the coronavirus pandemic is resurgent in many parts of the country, depressing business activity longer than many had expected and risking prolonged economic pain.
Millions of Americans remain out of work, and most of the stimulus cheques and small-business loan money that were approved in earlier bailouts have been distributed.
Expanded unemployment benefits, which provided an extra $600 per week, expire at the end of July.
Mnuchin, who was wearing a mask but removed it while testifying, offered a more optimistic forecast of the economy, saying he expected a rebound in the second half of the year. Powell, who did not remove his mask while testifying, acknowledged the recovery has begun sooner than expected but sounded less sanguine amid continuing uncertainty about the virus.
“We are in a strong position to recover because the Trump administration worked with Congress on a bipartisan basis to pass legislation and provide liquidity to workers and markets in record time,” Mnuchin told members of the House Financial Services Committee.
Powell pointed to better-thanexpected May employment numbers and retail sales figures to make the case that the economic recovery was underway. But he said the path forward would depend on both how the virus evolved and a willingness at “all levels of government” to provide policy support for as long as necessary.
“We have entered an important new phase and have done so sooner than expected,” Powell said. “While this bounce-back in economic activity is welcome, it also presents new challenges — notably, the need to keep the virus in check.”
Mnuchin signalled that the government was thinking about how to keep support flowing to companies and households as programmes head for expiration.
“We will be beginning to have conversations about supplemental relief legislation,” he said. “We would anticipate that any additional relief would be targeted to certain industries that have been especially hard-hit by the pandemic, with a focus on jobs and putting all American workers who lost their jobs, through no fault of their own, back to work.”
With millions of Americans still out of work and many businesses still shuttered or seeing lower levels of activity, lawmakers have begun discussing whether another round of fiscal support is needed.
House Democrats want a $3 trillion stimulus package. Republican lawmakers have been discussing legislation that would cost around $1 trillion. The White House has been pushing for a payroll tax cut, a capital-gains-tax holiday, and new deductions to encourage spending on dining and entertainment.
Mnuchin revealed little about the White House’s vision for the next stimulus plan, which he said he hoped could come together in July.
He suggested that the leftover money in the Paycheque Protection Programme should be repurposed to help industries that had been hit hardest by the pandemic, and that he was prepared to engage in negotiations about relief for states and municipalities.
Fed officials, for their part, have emphasised controlling the virus as the first step in ensuring an economic rebound.
A resurgence of infections “could force people to withdraw” and “undermine public confidence, which is what we need to get back to lots of kinds of economic activity that involve crowds,” Powell said during his testimony, noting that he was not predicting that another wave would happen.
Other central bank officials who spoke on Tuesday joined him in warning that it was crucial to get the pandemic in check.
“The economy seems to have bottomed out, and we’re seeing some encouraging signs of a recovery,” Lael Brainard, a Fed governor, said on a panel at the Brookings Institution. “On the other hand, we’re seeing some resurgence of the virus. So right now, my focus is on steering through a very uncertain recovery.”
As infections persist, many areas of the economy continue to require government support. Lawmakers questioned Mnuchin and Powell about what more could be done to help minorities and businesses in rural communities. In some cases, the two policymakers are still struggling to figure out how to prop up struggling sectors.
Powell and Mnuchin said that they were interested in helping commercial real estate borrowers who have been hard hit by the pandemic as tenants delay rent payments, but explained that it was difficult for them to do so.
“We have not yet figured out a way to set up a facility — it’s not out of a lack of interest, or a lack of desire,” Mnuchin said, suggesting that the next bill Congress passes may need to include some form of relief.
Both he and Powell emphasised that the emergency central bank programmes could provide only lending, not spending.
“More debt may not be the answer here,” Powell said. “There’s a serious problem here that needs to get fixed, and we’re racking our brains to see how — if there’s something we can do by lending.”
Congress gave the Treasury Department $454 billion to support the Fed’s emergency lending programmes, more than half of which remains uncommitted. But those programmes can only offer loans and help companies to issue debt — they cannot provide outright grants, which is Congress’ wheelhouse.
Powell also described their challenges in funneling help to mediumsized business through the Fed’s socalled Main Street Lending Programme.
Demand for the bank loans has been light, Powell said. And while thousands of banks should be eligible to lend through the program, which allows them to make associated fees while handing 95% of underwritten loans to the Fed, he said about 300 have registered.
“They’re not getting a ton of interest from borrowers,” Powell said of banks. “We continue to be open to playing with the formula and making adjustments going forward.”
Accountability was another major theme at the hearing. The Fed has been posting monthly reports to its website, disclosing both the amount of use and beneficiary names for the central bank lending programmes backed by