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Federal Reserve Chairman Jerome Powell stressed the importance of the lending programs it rolled out during the coronavirus pandemic, telling senators in testimony to be delivered on Tuesday that they played a vital role in prevent the economic fallout from escalating.
Treasury Secretary Steven Mnuchin, who will be appearing twice on Capitol Hill with Powell this week, said the legislation that allowed the programs did not allow them to exceed Dec.31. The two officials are speaking out in connection with required updates to the CARES Act on funding initiatives passed by Congress to help the economy through the pandemic.
Many of the key programs used by the central bank since March expire at the end of the year, and the Fed will be forced to return the funding that supports them.
“These programs serve as support for major credit markets and have helped restore the flow of credit from private lenders through normal channels,” Powell said in remarks prepared for the Senate Finance Committee. “We have deployed these lending powers to an unprecedented extent.”
Treasury Secretary Steven Mnuchin, who will appear twice on Capitol Hill with Powell this week, said legislation that allowed the programs did not allow them to exceed Dec.31. The two officials are speaking out in connection with required updates to the CARES Act on funding initiatives passed by Congress to help the economy through the pandemic.
In separate remarks, Mnuchin said the $ 455 billion in funding allocated to the Fed would be better used for other purposes. The Fed said it would have preferred to continue the programs next year.
“Based on recent economic data, I continue to believe that a targeted budget package is the most appropriate federal response. I urge Congress to use the unused $ 455 billion in the CARES bill to pass a bill. extra law with bipartisan support, ”Mnuchin told me. “The Administration stands ready to support Congress in this effort to help American workers and small businesses as they continue to fight the impact of COVID-19.”
The Fed programs in question have helped it buy corporate bonds, provide financing to small and medium-sized businesses through the Main Street loan facility, and funnel money to state governments. and local.
While Powell said the programs “helped unlock nearly $ 2 trillion in funding,” their actual use was much lower than that – just over $ 100 billion in all, although the Fed pointed out that their mere presence has given significant confidence to the markets.
On the economy, Powell provided a lukewarm outlook which he further said will depend on the progression of the virus, which has spread rapidly in recent times.
“As we have emphasized throughout the pandemic, the outlook for the economy is extraordinarily uncertain and will depend, in large part, on the success of efforts to control the virus,” he said. “The increase in new cases of COVID-19, here and abroad, is worrying and could prove difficult for the next few months. A full economic recovery is unlikely until people are convinced that it is safe to re-engage in a wide range of activities. “
Powell called recent vaccine news “very positive” for the medium term, but said “significant challenges and uncertainties remain”, including timing, production and distribution, and effectiveness in different groups “.
“It remains difficult to assess the timing and extent of the economic implications of these developments with any degree of confidence,” he added.
Powell reiterated that the Fed is ready to use its political tools. In addition to the loan and liquidity programs, the Fed has cut its benchmark lending rate to near zero and is buying at least $ 120 billion in bonds per month.
The Fed chairman may continue to use a handful of other programs aimed primarily at keeping markets functioning with money unrelated to the CARES Act.
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