Fed chair faces law­mak­ers’ skep­ti­cism on aid pro­grams

Pow­ell de­fends ef­forts to sup­port economy amid pan­demic

Daily Press - - Business Day - By Martin Crutsinger

WASH­ING­TON — Chair­man Jerome Pow­ell on Wed­nes­day de­fended the Fed­eral Re­serve’s ef­forts to sup­port the economy dur­ing the pan­demic-in­duced re­ces­sion from as­ser­tions that its pro­grams bun­gled as­pects of its re­sponse.

A House sub­com­mit­tee re­leased a staff anal­y­sis that found that a pro­gram in which the Fed bought cor­po­rate bonds to try to sup­port com­pa­nies strug­gling in the pan­demic in­cluded buy­ing bonds of com­pa­nies that laid off morethan1m­il­lion work­erss­ince March.

The re­port from the Select Sub­com­mit­tee on the Coronaviru­s Cri­sis con­cluded that 383 com­pa­nies whose bonds were bought by the Fed had con­tin­ued to pay div­i­dends to share­hold­ers, with 95 of those com­pa­nies also lay­ing off work­ers. The re­port said fos­sil fuel com­pa­nies ac­counted for 10% of the Fed’s bond pur­chases even though they em­ploy just 2% of the work­ers at larger com­pa­nies.

“Many large lay­offs have oc­curred among the com­pa­nies whose bonds were pur­chased by the Fed, sug­gest­ing that the pri­mary ben­e­fi­cia­ries of the pro­gram have been cor­po­rate ex­ec­u­tives and in­vestors not work­ers,” the re­port said.

Tes­ti­fy­ing on the sec­ond of three days to Congress about the gov­ern­ment’s res­cue as­sis­tance, Pow­ell took is­sue with the re­port’s find­ings. The chair­man said the Fed had struc­tured its cor­po­rate bond pur­chases, spread in rel­a­tively small sums and cov­er­ing more than 800 com­pa­nies, to en­sure that it wasn’t fa­vor­ing any par­tic­u­lar com­pa­nies. He noted that the cor­po­rate bond pur­chases were made in the sec­ondary mar­ket and not di­rectly from the com­pa­nies.

“We didn’t want to be de­cid­ing which com­pa­nies to help,” Pow­ell said.

The chair­man said the pri­mary aim of this pro­gram was to pro­vide a back­stop at a time of tur­bu­lence in bond mar­kets, and he sug­gested that this and other Fed pro­grams had suc­ceeded in sta­bi­liz­ing the mar­kets.

Pow­ell also faced sharp ques­tion­ing Wed­nes­day about the lack­lus­ter suc­cess so far of an­other Fed emer­gency pro­gram, the Main Street Lend­ing Pro­gram, which has sup­plied few loans to medium-size busi­nesses, its in­tended ben­e­fi­cia­ries.

Pow­ell’s tes­ti­mony this week comes as law­mak­ers are con­duct­ing over­sight of the gov­ern­ment’s re­sponse to the pan­demic. On Thurs­day, the Fed chair­man and Trea­sury Sec­re­tary Steven Mnuchin are sched­uled to tes­tify be­fore­the Se­nate Bank­ing Com­mit­tee.

Pow­ell was pressed Wed­nes­day by Democrats and Repub­li­cans to sup­port pro­pos­als to break a log jam that has kept Congress from pass­ing a new re­lief bill.

The Fed chair­man de­murred, say­ing it was up to Congress to de­cide what should be in­cluded in any new mea­sure. But he re­it­er­ated his be­lief that the economy would need more help to emerge from a re­ces­sion that has left mil­lions of peo­ple still un­em­ployed and bat­tered ma­jor por­tions of the economy.

Pow­ell said if the economy fares worse than ex­pected in the com­ing months, the Main Street pro­gram would be avail­able to pro­vide help to mid-size busi­nesses.

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