After more than two months, Treasury Secretary Steven Mnuchin and Federal Reserve Chair Jerome Powell returned to Capitol Hill this week, testifying before the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services.
Mnuchin and Powell faced questions from a divided Congress that is struggling to pass a stimulus package as the pandemic continues to surge and public health officials warn of increasingly dire public health dangers in upcoming months. Without fiscal relief, millions of Americans will lose unemployment benefits and other protections at year’s end.
In November, Mnuchin refused to extend several emergency lending programs, including the primary and secondary market corporate credit facilities, used by the Fed to purchase corporate bonds; the Municipal Liquidity Facility, which provided support for state and local governments; and the Main Street Lending Program that supported small and medium-sized businesses. These programs, funded by the CARES Act, will expire at the end of the year.
At the time, the Fed released a rare public response: “The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy.”
Mnuchin faced questions about these lending programs at both hearings, and responded that his decision was based on his interpretation of the CARES Act. Mnuchin also struck an optimistic tone, citing GDP growth and recent jobs reports as evidence that the economy is improving.
During the hearings, Powell said he accepted Mnuchin’s decision to terminate these programs, while also emphasizing that the Fed will continue using its full range of tools to support the economy. Powell stressed that the economic recovery remains fragile and said the economy needs a “bridge” to support individuals and businesses until there is widespread vaccination.
In both hearings, Mnuchin and Powell expressed support for fiscal relief. Mnuchin said that there is a need for stimulus relief before the year’s end and suggested that Congress could reallocate unspent Paycheck Protection Program funding to small businesses. Powell also said that the “lion’s share” of relief should be in the form of fiscal support. Economists critical of the decision to end certain lending programs argue that such programs reduce uncertainty and increase confidence in a market that still needs support.
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