Now, however, the Fed, with Treasury approval, has decreased the minimum loan amount and raised the maximum; extended repayment time from four to five years, with two years of grace up front, rather than one; and increased its backing of certain loans it buys from banks from 85 percent to 95 percent. Fed Chair Jerome H. Powell said Wednesday the plan will start “soon,” which is also a welcome development because Congress authorized the Fed to proceed two long months ago.
Now the United States may have in place the full range of loan guarantees to distressed but potentially viable businesses that is one of three keys to extending the incipient recovery mentioned in a new analysis by Olivier Blanchard and other top economists writing for the Peterson Institute for International Economics. The task at hand is to move from simply propping up the economy to helping it adjust to a new normal, possibly with major shifts of resources among industries, at minimum cost to the most vulnerable. The two other keys, Mr. Blanchard argues, are substantial unemployment benefits and possible wage subsidies, tailored to avoid discouraging work, as well as a plan to help insolvent firms quickly restructure their debts. Targeted for special government support should be the consumer-facing industries that have been, and probably still will be, hardest hit by necessary social distancing: transportation, entertainment, food service and hospitality.
There is only so much the Fed could or should do on those issues. Rather, it is the job of Congress and the Trump administration to design and fund additional economic legislation. Republicans have been dragging their feet about this, and some in the GOP saw last week’s encouraging decline in unemployment as an excuse to keep dragging them. There seems little chance of a new bill until next month at the earliest. Delay is dangerous and unwise, given Mr. Powell’s assessment Wednesday that the economy still faces “considerable risks.”
Fortunately, Treasury Secretary Steven Mnuchin seemed to acknowledge that when he said Wednesday that he “definitely” supports “legislation to put more money into the economy,” focused on industries and small businesses that need it most. No doubt a sudden mood swing from President Trump could upset the situation. But with the Fed and Treasury now on the same page, it’s time for Republicans and Democrats in Congress to start bargaining in earnest.