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Powell Dodges Senators’ Efforts to Get Him to Take Side on Aid

Craig Torres, Catarina Saraiva and Steve Matthews
Powell Dodges Senators’ Efforts to Get Him to Take Side on Aid

(Bloomberg) -- Federal Reserve Chairman Jerome Powell sought to maintain neutrality in the debate over whether Congress should build on record stimulus, to further cushion an economy facing increasingly dire pressure from the coronavirus pandemic.

Powell, who testified along with Treasury Secretary Steven Mnuchin at a virtual hearing of the Senate Banking Committee on Tuesday, reiterated his stance that more fiscal aid may be needed -- potentially giving Democrats some ammunition for an additional $3 trillion stimulus bill that Republicans and President Donald Trump have already rejected.

But Powell stopped short of a full-throated endorsement, a pleasing stance to Republicans such as Senator Pat Toomey who are urging a go-slower approach.

“I make my comments on fiscal policy on a general level and I’m reluctant to talk about timing and specific provisions,” Powell said under questioning from Brian Schatz, a Hawaii Democrat.

Powell’s reluctance to argue forcefully for more aid suggests a stalemate between Republicans and Democrats over the scale and timing of additional fiscal stimulus will continue. The prospect of any quick rebound in employment is becoming increasingly dim with tens of millions jobless and no strong treatment or vaccine immediately available to support Americans’ confidence in returning to work, school and shopping.

The comments by Powell compare with remarks at the end of last month, when he dismissed concerns about ballooning federal debt, saying that “this is the time to use the great fiscal power of the U.S.”

Powell and Mnuchin were both pressed on the amount of funding that has been released through the programs already in operation.

“It’s all ahead of us. The amount that has gone out so far, in the context of the U.S. economy, is fairly modest,” Powell said.

Mnuchin was grilled by Democrats on the committee on how his deployment of pandemic rescue aid has done enough to help workers and small- and medium-sized businesses as opposed to big corporations. Senators from both parties asked the Treasury chief about how he intends to mobilize the $500 billion in support that Congress authorized.

Mnuchin defended the administration’s work to help the economy, pointing to relief in market liquidity and the delivery of hundreds of billions of dollars in disaster relief and forgivable loans to mom and pop companies.

State and Local

One focus of interest among lawmakers during the hearing was about the strain on state and local governments and potential for additional support. “We are continuing to look at ways to accommodate further borrowing,” Powell said.

Powell also said the central bank is ready to use all the weapons in its arsenal to help the U.S. economy endure the coronavirus pandemic, as attention shifts to whether Republicans and Democrats will agree to more fiscal aid.

“We are committed to using our full range of tools to support the economy in this challenging time even as we recognize that these actions are only a part of a broader public-sector response,” Powell said.

Powell and Mnuchin appeared before lawmakers for a hearing on the first quarterly CARES Act report to Congress.

Working with the Treasury, the central bank has launched unprecedented support for markets and the economy since mid-March. It slashed interest rates to near zero and unveiled nine emergency lending programs, supporting everything from corporate to municipal credit markets as it tried to stabilize access to financing.

The Fed is still trying to launch four of the nine facilities, including one aimed at Main Street that will buy bank loans extended to mid-size businesses. The facility is one of the riskiest and most challenging programs the Fed has undertaken given the diversity of businesses that are likely to borrow.

“We expect all of them to be stood up and ready to go by the end of this month,” Powell said of the remaining programs during questioning at the hearing. “People are working literally around the clock and have been for weeks.”

The House backed an additional $3 trillion Democratic economic stimulus bill Friday. The measure would give cash-strapped states and local governments more than $1 trillion while providing most Americans with a new round of $1,200 checks. House Speaker Nancy Pelosi said it should be the basis of talks with the GOP-controlled Senate and White House, which have argued for a pause to allow earlier virus-recovery spending to work.

Calls for more stimulus from Democrats contrast sharply with the view of GOP lawmakers and Trump that the best way to revive the economy is to end state lockdowns aimed at containing the pandemic. During Tuesday’s hearing, Mnuchin warned of significant harm to the economy if shutdowns are prolonged.

“There is the risk of permanent damage,” Mnuchin told lawmakers. “And as I’ve said before, we’re conscious of the health issues and we want to do this in a balanced and safe way.”

For all the support, just about every indicator of the U.S. economy shows history-making declines as economic activity slammed into a sudden stop as households sheltered in place. Employers cut 20.5 million jobs last month, tripling the unemployment rate to 14.7%, the highest since the Great Depression.

Powell said the scope and speed of the downturn “are without modern precedent and are significantly worse than any recession since World War II.”

(Updates with comments from Treasury Secretary.)

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