Powell, Mnuchin Defend Federal Response to Economic Crisis

WASHINGTON (CN) — Federal Reserve Chair Jerome Powell told a Senate panel on Tuesday he expects federal initiatives meant to stabilize the economy during the coronavirus pandemic will be up and running by the end of the month.

Powell made the comments during testimony before the Senate Banking, Housing and Urban Affairs Committee on Tuesday while updating senators on the progress of implementing the  $2.2 trillion CARES Act, which became law at the end of March.

The day before the hearing, a congressional commission tasked with overseeing the distribution of a $500 billion economic relief fund said little of the money meant to help stabilize the economy during state-ordered closures aimed at slowing the spread of the virus has gone out the door.

Powell and Treasury Secretary Steven Mnuchin told senators on Tuesday that the administration has been working to stand up the lending facilities that will run through the Fed to help support the economy.

"It's all ahead of us," Powell said Tuesday. "We've taken some time to set these facilities up so the amount that's gone out so far is, in the context of the U.S. economy, fairly modest."

Powell emphasized the lending facilities are complex, particularly the Main Street Lending Program, which is meant to support loans for medium and small businesses.

Mnuchin told the committee that while a limited amount of the $500 billion CARES Act fund has been doled out, the Treasury Department has committed approximately $200 billion to support the Fed's lending programs in the future.

He said the agency is willing to take on significant risk when obligating the money and is operating under the assumption that it might incur losses when pouring funds into some of the lending facilities.

"Our intention is that we expect to take some losses on these facilities, that's our base-case scenario," Mnuchin said.

Lawmakers have placed a keen focus on monitoring how the record amount of money included in the CARES Act is spent and Powell and Mnuchin appeared at the committee's remote hearing Tuesday as part of the oversight requirements built into the law. 

Throughout the hearing, senators expressed concern about how quickly the money was getting into the economy and about the conditions federal agencies have placed on entities receiving the funds.

"Let me suggest to you that timing is of the essence, just as it was in [the Paycheck Protection Program]," Senator Jerry Moran, R-Kansas, said, referring to a small business loan program that was also part of the CARES Act. "The circumstances companies face today and layoff and furloughing employees are present and around the corner. So I encourage the precipitous, but thoughtful, action in addressing these circumstances."

Senator Elizabeth Warren, D-Mass., pressed Mnuchin on the possibility of criminal penalties for company executives that misuse the funds their companies receive or give false information to obtain the money. When Mnuchin declined to commit one way or the other, Warren accused the former Goldman Sachs executive of going too easy on large businesses.

"You're boosting your Wall Street buddies and you are leaving the American people behind," Warren said during the hearing.

Mnuchin took offense to that, saying the CARES Act included carefully negotiated restrictions on its funds.

"Senator Warren, I think that's a very unfair characterization, and these issues were discussed with both Republicans and Democrats at the time," Mnuchin said. "You were not necessarily part of those discussions, but these were completely discussed."

Also hanging over the hearing was the possibility that Congress will need to pass yet another economic support bill, even as states start to reopen their economies. The House passed a $3 trillion bill at the end of last week that includes money to states, relief to renters and homeowners and a new round of stimulus checks, though the legislation is not expected to get traction in the GOP-controlled Senate.

Powell was hesitant to endorse specific policy proposals, but noted people will not necessarily go back to their normal behavior even when businesses open their doors again.

He said an economic recovery could be complicated by businesses permanently shuttering and people who are out of work for long periods of time losing skills and contacts necessary to make up the losses in employment and get the economy back to its pre-pandemic highs.

"I think what Congress has done to date has been remarkably timely and forceful," Powell said. "I think you could say the same about what we've done. I do think we need to take a step back and ask — over time —is it enough? And we need to be prepared to act further."

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