Fed Chair Warns Recovery Will Be Slow Until Virus Is Contained

Federal Reserve Board Chairman Jerome Powell, left, and Treasury Secretary Stephen Mnuchin, bump elbows at a House Financial Services Committee hearing on Tuesday. (Bill O’Leary/The Washington Post via AP, Pool)

WASHINGTON (CN) — With experts suggesting Covid-19 infections in the U.S. could more than double on a daily basis without better containment, the chair of the Federal Reserve also warned Congress on Tuesday that a full economic recovery will remain out of reach until the pandemic is under control.  

“The path forward remains extraordinarily uncertain and depends in large part on our ability to contain the virus,” Fed Chairman Jerome Powell told members of the House Financial Services Committee from behind a gray facemask.

Some 126,000 Americans are dead from the novel coronavirus and over 25 million have lost their jobs as the U.S. economy continues to feel the ripple effects of the coronavirus crisis that began at the top of this year.

Despite those harrowing losses, consumer spending saw a small bump in May as more businesses began reopening and more states loosened social distancing restrictions. Warnings from a myriad of public health officials and experts that reopening too soon could trigger new outbreaks did not deter a small increase in employment last month either.

But Powell, who testified alongside Treasury Secretary Steve Mnuchin on Tuesday, emphasized the effect a second round of widespread outbreaks would have on the U.S. economy in the months ahead.

“A second outbreak could force governments and people to withdraw again from economic activity and 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 involve crowds,” he said.

While Powell’s assessments were largely cautious, Mnuchin’s were more confident. He said the U.S. is in a “strong position” to recover, given the billions in funding that have already flowed to small businesses and families as a result of the Senate, House and White House coming together on the CARES Act this spring.

About $135 billion still remains of the original $600 billion Paycheck Protection Program, a relief initiative spurred by the pandemic that is set to expire by midnight Tuesday.  A debate is brewing in the Senate over how those funds could be allocated.

Democratic Senators like Ben Cardin of Maryland and Jeanne Shaheen of New Hampshire have joined forces on a proposal to infuse funds into the hands of business owners who still couldn’t get their footing after the initial tranches of relief were dispersed. That proposal would be limited to businesses with less than 100 employees who can prove their business saw half or more of its revenue decimated.

Other lawmakers like Republican Senator Marco Rubio of Florida have proposed the formation of new relief programs that would take funds from the remaining $135 billion pot and open applications up to chambers of commerce.  

House Financial Services Committee Chairwoman Maxine Waters dismissed the proposal during Tuesday’s testimony, noting that black and brown small business owners in particular have yet to even take a first bite of the apple, let alone a second, before they are forced to compete with a wider group of would-be borrowers.

Congress must come together on addressing the disproportionate impact felt on these communities first, Waters argued.

“Half of all black adults are not working,” the California Democrat said. “During the ’08 crisis, there was a similarly disproportionate impact on communities of color and this was followed by unequal recovery where white households gained their losses… Black and brown households are still struggling to catch up.”

The Bureau of Labor Statistics reported that where unemployment fell slightly to 12.4% for white workers in May, it grew to a record-breaking 16.8% among black workers, the highest figure for that group in over 10 years.

Reporting from the Federal Reserve and Treasury Department on the racial disparity issue is forthcoming, both Powell and Mnuchin said Tuesday.

Whether the Treasury secretary will provide greater insight into how the department is managing the trillions flowing in bailout funds is less clear. Mnuchin has so far failed to provide Congress with complete records on loan recipients from the Paycheck Protection Program. Instead, he has agreed only to provide a partial list.

This has created a barrier to collecting data on who is receiving the money or ensuring that certain groups, like black or women-owned businesses, are not being unfairly excluded. Mnuchin’s refusal to release the information in full also runs contrary to decades-long precedent for subsidized loans issued by the Small Business Administration, the agency spearheading the Paycheck Protection Program.

Congresswoman Carolyn Maloney, a New York Democrat and chairwoman of the House Oversight Committee, tangled with Mnuchin briefly Tuesday. She asked him to explain the department’s lack of transparency but Mnuchin hedged, saying he would coordinate a response to lawmakers’ requests with the relief program’s special inspector general, Brian Miller, who worked as a White House attorney since 2018.

Covid-19 relief funding was not the only item on lawmakers’ agendas Tuesday. Reports that Russian President Vladimir Putin offered Taliban soldiers handsome bounties for the deaths of American troops – and possibly with President Donald Trump’s knowledge – drew sharp questions from Representative Brad Sherman, D-Calif.

“Your department was supposed to sanction Russia for their violation of the Chemical Weapons Act when they used poison to try and assassinate [Sergei Skripal] in Britain, but you opted for the weakest sanctions allowed by the act,” Sherman said.

Those sanctions included a prohibition on only certain kinds of loans from Americans to the Russian government but did not apply to ruble transactions directly or purchases in the secondary market.

“We believe we followed the law and selected among a series of items at the time. But I’m happy to go back and look at it again,” Mnuchin replied.  

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