Mnuchin, Powell Say Fed Programs Are Serving Their Purpose, Urge More Spending -- Update

By Nick Timiraos and Kate Davidson

The two top U.S. economic officials told lawmakers that emergency loan programs to support the coronavirus-stricken economy were largely working as intended and that more government spending would be needed to sustain the recovery.

Treasury Secretary Steven Mnuchin said he didn't anticipate further changes that would ease access to loan programs established jointly with the Federal Reserve. "I unfortunately think there's not much more we can do," he told the House Financial Services Committee on Tuesday.

Mr. Mnuchin and Fed Chairman Jerome Powell faced questions from lawmakers who wanted to know why more couldn't be done to adapt the central bank's emergency loan programs to help hard-hit businesses, including the commercial real-estate sector, or city and state governments.

Their answers suggested they believed those loan programs had done what they could to preserve favorable financial conditions for eligible borrowers and that what many would-be borrowers need now are grants, which would require new funding from Congress, as opposed to loans from the Fed.

Mr. Powell said the economic rebound that began in May had been sustained in part with the $2.2 trillion relief measure Congress approved in March, which included more generous unemployment benefits and grants to small businesses.

"It deserves a lot of credit for keeping people spending," said Mr. Powell. "It is likely that more fiscal support will be needed."

Their testimony came as the nation marked another grim milestone with more than 200,000 deaths from the new coronavirus, and as congressional Democrats and Republicans remained at an impasse over another round of stimulus spending.

Congress in March authorized $454 billion for the Treasury to backstop losses in Fed lending programs, and Mr. Mnuchin authorized $195 billion for five different lending programs.

The Treasury secretary said Tuesday he didn't see a need to use the remaining $259 billion and supported repurposing $200 billion of those funds for other spending programs. Mr. Powell wasn't asked whether he would support reallocating those funds.

The five lending programs the Fed and Treasury established using congressional funding would theoretically allow for nearly $3 trillion in new borrowing. The Fed has extended less than $20 billion in such loans.

In some cases, such as the $600 billion Main Street Lending Program for small and midsize businesses, low uptake reflects complications the Fed and Treasury encountered launching the program and enticing banks and borrowers to use it. For others, lower volumes reflect the success the mere announcement of the Fed backstops have had in spurring private investors to buy assets.

While around half of the 22 million jobs lost in March and April have been recovered, Mr. Powell said he was concerned about the number of Americans that were likely to remain out of work until vaccines made it possible for a complete recovery in sectors such as entertainment and lodging that have been most disrupted by the pandemic.

"We still have 11 million people out there" without jobs, Mr. Powell said. "There is a lot of work to do there."

Mr. Powell said he thought the economy would eventually feel negative effects of fiscal relief measures that expired this summer.

The nature of the pandemic, which has boosted demand for certain goods and services while severely restraining others, has also created novel challenges for the economic-stabilization policy the Fed typically provides in a downturn.

The Fed cut rates to near zero in March and purchased trillions of dollars of securities after the coronavirus pandemic threatened to touch off a financial panic.

But with short- and long-term interest rates at historically low levels, the Fed could have fewer tools to spur a recovery than it did after the 2008 financial crisis.

Referring to monetary and fiscal policy, Mr. Powell said Tuesday, "The recovery will go faster if we have both tools continuing to work together."

Members of both parties have criticized the Main Street program for low lending volume. The program has around 230 loans worth around $2 billion that have been made or are in process, Mr. Powell said.

Democrats, meanwhile, expressed frustration that a separate $500 billion loan program for state and local government borrowing has resulted in only two loans. "This is unacceptable," said Rep. Maxine Waters (D., Calif.), chairwoman of the House Financial Services Committee. "This pandemic response has fallen badly short."

Mr. Powell told lawmakers the government could reach hard-hit industries and workers more readily with additional grants. Lowering the minimum loan amount for Main Street loans to $100,000 from $250,000, for example, wasn't likely to make a big difference because the program hasn't attracted significant interest from borrowers seeking loans of less than $1 million, Mr. Powell said.

Write to Nick Timiraos at [e-mail] and Kate Davidson at [e-mail]