This week, Federal Reserve Chair Jerome Powell and Secretary of the Treasury Steven Mnuchin testified before Congress at multiple hearings on the response to the economic crises created by the coronavirus pandemic.
Their appearances on Capitol Hill came the same week as a staff report released by the House Select Subcommittee on the Coronavirus Crisis that heavily criticized the Fed’s corporate bond purchases during the pandemic. The subcommittee’s analysis studied bonds purchased through the Secondary Market Corporate Credit Facility, a lending institution backed by funds appropriated by the CARES Act, and found that companies issuing the bonds had prioritized profits for shareholders over saving jobs.
According to the report, of the 500 companies whose bonds were bought by the Fed, almost half have been accused of illegal conduct in the last three years and 140 have conducted substantial layoffs affecting more than a total of more than a million workers since March. In addition, 95 companies paid dividends to their shareholders while laying off workers, and fossil fuel companies accounted for 10 percent of the Fed’s bond purchases, though they employ only 2 percent of workers at large companies.
On Wednesday, Powell testified before the subcommittee and stressed the need to work toward an improved unemployment rate, saying that “there’s a long way to go.” But as the report notes, in May, Powell had justified buying these corporate bonds by claiming these companies have “been able to avoid big layoffs. That is the point of all this.”
Powell was also repeatedly questioned on Tuesday by the House Financial Services Committee about the Fed’s support for small businesses, which has come under significant criticism because of the hundreds of billions remaining in its Main Street Lending Program — meant to provide loans for small and mid-sized firms — that banks have not taken up. When Mnuchin voiced the idea that the program could better support small businesses if the minimum loan size were dropped from $250,000 to $100,000, Powell said, “There is very little demand below a million dollars.” He also said that “trying to underwrite the credit of hundreds of thousands of small businesses would be very difficult” for the Fed.
At this week’s hearings, Powell and Mnuchin both expressed support for increased fiscal spending to help the U.S. economy. At the Senate Banking Committee’s Thursday hearing, Powell emphasized broadening the Paycheck Protection Program to provide more support for small businesses and boosting unemployment benefits. Mnuchin has said he supports this strategy, and even said on Tuesday that the president is ready to make a deal to support out-of-work Americans and “would very much support signing into law additional PPP money immediately.” However, lawmakers have remained deadlocked on a potential new relief bill, with the parties split on how much aid to provide.