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The coronavirus might not be the worst of it
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Fed’s Powell warns lawmakers not to become complacent in dealing with coronavirus

“While this bounce-back in economic activity is welcome, it also presents new challenges — notably, the need to keep the virus in check," Powell said.

Fed Chair Jerome H. Powell, left, and Treasury Secretary Steven Mnuchin appear Tuesday before the House Financial Services Committee. (Bill O'leary/AFP/Getty Images)
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Federal Reserve Chair Jerome H. Powell said Tuesday that the path ahead for the U.S. economy remains “extraordinarily uncertain” and that the recovery will largely depend on containing the coronavirus pandemic and reassuring Americans that it is safe to resume their former lives.

Testifying before the House Financial Services Committee, Powell said the economy may be showing signs of progress as hiring resumes and consumer spending rebounded last month. However, he said that “while this bounce-back in economic activity is welcome, it also presents new challenges — notably, the need to keep the virus in check.”

Powell’s cautious assessment of the U.S. economy comes as senior Trump administration officials enthusiastically tout the rebound. At the same hearing, Treasury Secretary Steven Mnuchin pointed to an 18 percent increase in retail sales and cited U.S. Chamber of Commerce data showing close to 80 percent of small businesses are “at least partially” open. On Monday, senior White House economist Larry Kudlow said that the “overwhelming” evidence pointed to a V-shaped recovery.

“We are seeing additional signs that conditions will improve significantly in the third and fourth quarters of this year,” Mnuchin said in his opening statements.

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Congress faces an enormous set of policy questions to address in the coming weeks as it debates whether to pass another stimulus package. Toward the end of July, the $600-per-week increase in unemployment benefits is set to expire. Congressional Republicans and the president want that additional benefit to end to push more Americans into the labor market, but many economists warn their expiration could sharply reduce spending in the economy.

Almost all of the $1,200 stimulus payments approved by Congress have been allocated. The administration’s small-business bailout program expired Tuesday. An estimate from JPMorgan Chase analysts found that the amount of federal fiscal support would drop by more than $1 trillion from the second quarter to the third without additional relief efforts.

“We have a lot of important features that all come to an end in July,” Mnuchin said, adding that he was committed to working on a bipartisan basis on whether those programs needed to be extended.

The Fed has rolled out a slew of emergency lending programs since the recession touched down. But Powell has said that the Fed’s tools cannot extend direct relief to households and businesses and that more assistance from Congress may be needed to keep struggling Americans afloat. Asked by lawmakers Tuesday about whether Congress should pass additional assistance, Powell pivoted to Mnuchin.

“For the specifics of what you need to be doing we have the treasury secretary,” Powell said. “I would defer to the treasury secretary on fiscal matters here.”

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Still, the Fed has faced criticism that its lending programs and efforts to bolster the markets, including through corporate debt purchases, widen economic inequality and don’t trickle down to the tens of millions of Americans who are out of work. Powell said the Fed is supporting the financial markets to help usher in a strong and stable recovery and protect American jobs, and that the programs give the Fed leverage to intervene in case conditions deteriorate again.

“The objective of every single thing we’re doing is to create a situation in which [Americans] have the best chance to go back to their old job or their new job,” Powell said. “That’s the overriding goal of what we’re doing, and every one of [our programs] helps in that direction."

In particular, Powell said the Fed was open to making changes to its Main Street lending program for small and midsize businesses, including lowering the minimum loan amount, which has already been reduced from $1 million to $250,000. The program has had roughly 300 banks register, Powell said, though many report little interest from borrowers so far.

“Many of them say they expect that will change over the course of the next few months,” Powell said. “We continue to be open to playing with the formula and making adjustments going forward.”

Mnuchin suggested the administration would support direct financial aid for the hotel industry in the next stimulus package, in response to questions from lawmakers about their ongoing challenges. Mnuchin has said the administration will look to provide targeted financial support for particularly affected industries — likely tourism, travel and other sectors hit hard by the pandemic.

Moving forward, there are open questions about whether struggling businesses can afford to take on more debt. The Fed’s powers allow the central bank only to lend money, not simply spend it. Mnuchin said any additional relief from Congress would consider hardest-hit industries that can’t stretch their balance sheets even further.

“More debt may not be the answer here,” Powell said.