Mnuchin, Powell Pledge Additional Relief to Prevent Lasting Damage to Economy

06/30/2020 | 05:28 pm

By Nick Timiraos

The nation's top two economic policy makers pledged to consider additional relief to prevent lasting damage to labor markets and businesses amid signs that more states are struggling to suppress the coronavirus pandemic.

A congressional hearing with Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell, however, was light on the specifics of what measures might constitute an agreement between President Trump and congressional Democrats on any further aid.

Congress faces deadlines over the coming weeks. New forgivable loans available under the $670 billion Paycheck Protection Program for small businesses can't be made when the initiative expires Wednesday, and government analysts estimate around $130 billion in funds authorized by Congress won't be lent.

Meanwhile, an extra $600 a week in unemployment benefits that Congress approved in March -- to make up for incomes lost as workplaces closed -- is set to expire in late July. And state and local governments have been finalizing budgets for the fiscal year that begins Wednesday.

"We have a lot of important features that all come to an end in July," Mr. Mnuchin told lawmakers at the House Financial Services Committee on Tuesday. He said the administration wanted any additional relief to be "targeted to certain industries that have been especially hard-hit by the pandemic."

Mr. Powell said hiring, spending and other economic activity had rebounded earlier than central bank officials had anticipated in the spring but said the increase in commerce that entails large gatherings or other close personal contact carried new risks.

"We have entered an important new phase and have done so sooner than expected," Mr. Powell said. "While this bounce back in economic activity is welcome, it also presents new challenges -- notably, the need to keep the virus in check."

A surge in new coronavirus cases and rising hospitalization rates in states such as California and Texas are jeopardizing the lifting of restrictions on certain activities elsewhere.

"Hypothetically, a second outbreak would force governments and people to withdraw again from economic activity," Mr. Powell said. While stating that he wasn't forecasting another outbreak, he said, "The worst part of it would be to undermine public confidence, which is what we need to get back to lots of kinds of economic activity that involves crowds."

Mr. Powell joined business executives and others who have warned in recent weeks that any economic rebound will be limited if governments and businesses can't make people feel safe working or spending money indoors. "Full recovery is unlikely until people are confident that it is safe to re-engage in a broad range of activities," Mr. Powell said.

Messrs. Powell and Mnuchin appeared in a cavernous auditorium on Capitol Hill that offered lawmakers more space than the tight quarters of a traditional hearing room. They sat with masks at separate tables behind Plexiglas shields, and Mr. Powell wore his mask while speaking.

The hearing before the House Financial Services Committee is part of quarterly appearances required by the $2 trillion relief package Congress approved in March, which provided more than $450 billion for the Treasury to cover losses in emergency-lending programs run by the Fed.

The Fed has established nine such programs, including several to backstop lending to large and small companies, cities and states, with $195 billion provided from the Treasury to cover losses.

House Democrats in May passed a $3.5 trillion stimulus bill, which includes extending the enhanced jobless benefits through the end of the year and relief for cities and states. The White House has preferred to take a wait-and-see approach to evaluate what is working and what isn't from already approved money. Some Republicans have voiced concerns about deficit spending.

Lawmakers have been considering how to structure further additional relief to address high unemployment and potential business failures resulting from the pandemic, particularly in the hospitality, travel and entertainment industries that could see depressed levels of activity as long as the virus isn't under control.

Messrs. Powell and Mnuchin told lawmakers there were limits to how much the Fed's emergency lending programs could help businesses with too much debt or too little revenue, including for hotels and other commercial real estate enterprises.

"Debt doesn't solve every problem," said Mr. Powell.

Write to Nick Timiraos at nick.timiraos@wsj.com

 

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