Parts of the U.S. are taking steps to scale back reopenings amid a fresh surge in infection rates, with Arizona closing bars and New Jersey halting plans for indoor dining. Massive monetary and fiscal policy stimulus have been unleashed to support the U.S. economy during the pandemic, but signs the crisis may linger longer will increase pressure for more aid.
Lawmakers pressed Mnuchin on government support for small businesses through the Paycheck Protection Program. The deadline to apply for a forgivable loan under PPP is Tuesday and the Treasury secretary said that money left in fund can be repurposed by Congress for restaurants and hotels. The travel and leisure industry is among those hardest hit by the pandemic, he said.
The Fed has slashed interest rates to zero and worked with Treasury to launch nine emergency lending programs aimed at providing a credit backstop to everything from municipalities to medium-sized businesses. Those actions helped lower borrowing costs and keep the financial system liquid in a time of stress, while propelling the stock market higher. The Standard and Poor’s 500 stock index is up about 37% from its March lows.
In addition to monetary stimulus, U.S. lawmakers have also approved almost $3 trillion in taxpayer support including direct assistance to small businesses and enhanced unemployment insurance for the many millions of workers who’ve lost jobs since the virus struck.
House Democrats questioned Powell and Mnuchin on ways to find more aid for state and local governments and how to more strongly tie government support to jobs.
“We can see ourselves possibly lowering the threshold again,” Powell said in reference to the Fed’s Main Street lending facility for small- and medium-sized businesses. “Just logistically for us to be making very, very small loans would be difficult.”
Earlier this month the Fed expanded its Main Street program, which was slow to start, to let more companies participate. The central bank lowered loan minimums to $250,000 from $500,000 and extended the loan term to five years from four.
Powell acknowledged that banks aren’t getting “a ton of interest” yet from borrowers on the Main Street loans.
“Many of them say they expect that’ll change over the course over the next few months,” said Powell. The Fed is open to making some changes to the program’s formula, if needed, he said,.
Mnuchin reiterated at the hearing the administration’s goals to pass another round of fiscal stimulus by the “end of July.”
Congressional Republicans have delayed any talks on additional stimulus for a month and half in the hopes that an improving economy would lessen the need for more deficit spending.
The House in May passed a $3.5 trillion partisan bill with nearly $1 trillion in aid for states, expanded unemployment insurance through January, another round of $1,200 stimulus checks as well as funds for Covid testing, broadband Internet expansion and housing assistance among other provisions.
Senate Majority Leader Mitch McConnell declared the House bill dead on arrival and said that his office would begin drafting the next bill in mid-to-late July after analyzing economic data. McConnell has publicly called for the next bill to include liability protections for businesses seeking to reopen and privately Republicans are seeking to cap any further spending at $1 trillion or less.
On Monday House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer wrote to McConnell urging him to begin immediate bipartisan talks on stimulus given the rising number of Covid cases and stalled reopening in many states. Democrats are also calling on McConnell to cancel the two week Senate recess that begins Thursday to tackle the next relief bill.
Economists caution that a long period of labor reallocation -- where workers in an industry directly impacted by the virus such as lodging have to find new skills and jobs in other industries -- risks keeping unemployment high for years.
The Labor Department will release jobs data for June on Thursday. Forecasters surveyed by Bloomberg see the unemployment rate dropping to 12.5% compared with 13.3% for May.
Powell and Mnuchin were repeatedly asked about minority Americans’ access to stimulus funds. Several representatives noted that Americans of color were particularly hard hit in the current crisis, which Powell also mentioned in his opening remarks and Mnuchin has referenced in the past. Both said that the Treasury and Federal Reserve are reaching out to minority-led financial institutions and community banks to encourage more of them to participate in stimulus programs.
The Fed chair in his remarks to lawmakers struck an optimistic note on what he is seeing as economic activity resumes. Hiring is picking up, he noted, and spending is increasing, though he cautioned that 20 million Americans have lost their jobs.
“The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in containing the virus,” he said. “A full recovery is unlikely until people are confident that it is safe to re-engage in a broad range of activities.”
As he has in recent appearances, Powell also warned against pulling back on any form of stimulus too soon.
“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.
(Updates with comments from hearing.)
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