Mnuchin & Powell: Different Priorities for Economy

Facing the gravest U.S. economic crisis in decades, Treasury Secretary Steven Mnuchin and Federal Reserve Chair Jerome Powell offered Congress contrasting views Tuesday of what the government’s most urgent priority should be.
Striking a theme frequently pushed by President Donald Trump, Mnuchin warned that prolonged business shutdowns would pose long-term threats to the economy, from widespread bankruptcies for small businesses to long-term unemployment for millions of Americans.
“There is risk of permanent damage,” Mnuchin said.
Powell, by contrast, stressed, as he has in recent weeks, that the nation is gripped by an economic shock “without modern precedent” and that Congress must consider providing further financial aid soon to support states, localities, businesses and individuals to prevent an even deeper recession.
“What Congress has done to date has been remarkably timely and forceful,” Powell said. “But we need to step back and ask, ‘Is it enough?’”
Mnuchin and Powell offered their views at an oversight hearing of the Senate Banking Committee at which members of both parties questioned them about when their agencies will distribute more of the emergency aid that Congress provided in late March to struggling small businesses and households.
Powell said that a highly anticipated lending program the Fed is creating for small businesses should be operating by the end of the month. And in a turnaround, Mnuchin said the Treasury is now prepared to absorb some losses in that program, which is funded by Treasury. Doing so could enable the Fed to take on further risk with the program and help more struggling companies.
The hearing was the first in a planned series of quarterly oversight sessions focused on spending programs authorized in the $2 trillion federal relief package that is overseen by the Treasury Department and Fed. They include the $660 billion small business lending facility, known as the paycheck protection program, as well as $46 billion in grants to airlines and $454 billion to support the Fed’s lending.
The Fed announced in March that it would set up the Main Street Lending Program, which will provide up to $600 billion in loans to medium-sized businesses that are too large to participate in the Paycheck Protection Program. The Treasury has provided $75 billion, drawn from the $454 billion set aside by Congress, to cover any losses from the Main Street program.
Mnuchin said that under some scenarios the Treasury could lose some or all of that $75 billion.
“Our intention is that we intend to take some losses,” he said.
Mnuchin said in prepared testimony that so far, the paycheck program has processed more than 4.2 million loans for over $530 billion “to keep tens of millions of hardworking Americans on the payroll.” The loans need not be repaid as long as the borrowing business uses 75% of the money to cover workers’ paychecks.
But many small companies say the terms are too onerous. To have the loans forgiven, they must rehire all their employees within eight weeks of receiving the funds, even if they have little business or work for them to do. These companies argue that they might have to lay off their workers again at the end of the eight weeks – and may have little money left to help ramp up when business does return.
Mnuchin, pressed about those issues and about opening the loan program to more nonprofits, said his department was considering making changes.

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