Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell appeared remotely before the Senate Banking Committee Tuesday to defend the nation's economic response to the coronavirus crisis.
While Mnuchin generally struck a positive tone, predicting an economic upturn in the second half of 2020 and praising the Trump administration for the response so far, Powell suggested Congress might need to pass even more than the trillions in relief aid it has already.
"This is the biggest response by Congress ever, and the fastest, and the biggest from us, and still this is the biggest shock we have ever seen in living memory. The question looms in the air of, is it enough?" Powell said.
Mnuchin did warn of the possibility of severe and extended economic downturn, saying "there is the risk of permanent damage.” But he also reiterated "We expect economic conditions to improve in the third and fourth quarter and into next year." Powell disagreed with that prediction in an interview with CBS News program "60 Minutes" on Sunday, saying "it may take a period of time, it could stretch through the end of next year, we really don't know.”
MORE: Treasury has disbursed only a fraction of $500 billion coronavirus relief fund, commission reports
Powell noted that the economic recovery is inherently dependent on controlling the virus so that Americans feel safe returning to work and to normal economic activity.
“It will be a combination of getting the virus under control, development of therapeutics, development of a vaccine," he said.
Many senators emphasized reopening the country, with Ranking Member Sen. Sherrod Brown, D-Ohio, implying that Mnuchin and Trump administration officials are pushing economic well-being at the expense of workers' lives. Brown, like the rest of the senators, participated remotely.
"How many workers should give their lives to increase the GDP or the Dow by 1,000 points?" Brown asked.
"No workers should give their lives to do that, senator, and I think your characterization is unfair," Mnuchin said.
"We don't intend to send anybody back to work without the protections, and I would say I was prepared to come there today. I thought it was safe to testify. Matter of fact, I already was at the Senate this morning wearing a mask, and I assure you, both myself and everybody on the Task Force, the vice president and others, are following the best medical advice, and I couldn't be more proud of the medical advice that we're getting and the way the economy is opening up in a safe way," Mnuchin continued.
Under the CARES Act, Mnuchin maintains control of a $500 billion fund meant for larger businesses, airlines and state and local government. A report by the Congressional Oversight Commission tasked with overseeing the funds this week revealed that only $37.5 billion has been disbursed so far.
Mnuchin did not specify when the rest of the funding would be allocated.
"Let me be clear, I am prepared to allocate the rest of that. The only reason I have not allocated it fully is we are just starting to get these facilities up and running. We want to have a better idea as to which one of the facilities needs more capital as well as the potential for adding additional facilities. So, I expect to allocate all of the capital, as needed, as was given to us," Mnuchin said.
Powell said that one of the most anticipated programs that will come from the $500 billion, the Main Street Lending Program, which is meant to help medium-sized businesses too large to qualify for PPP, should be ready by the end of May. Powell noted the terms for qualification have been revised multiple times in order to include more businesses.
After questions on whether the Department of the Treasury was willing to assume risk in the effort to prop up hard-hit businesses, Mnuchin said he was "fully prepared" to take losses "in certain scenarios."
“There are scenarios within the business lending programs where we could lose all of our capital, and we’re prepared to do that. And there are scenarios where the world gets better, and we could actually make a small amount of money,” Mnuchin said.
Senator Elizabeth Warren, D-Mass., delivered one of her signature fiery performances, pressing Mnuchin to require any companies that receive bailout money through the CARES Act provisions keep workers on payroll.
"We negotiated very significant restrictions on employee compensation, on dividends, on buybacks. And in the main street facility we have put in a provision that we expect people to use their best efforts to support jobs," Mnuchin said.
"In all of the facilities that are not the Main Street facility, you're not putting in any requirement for payroll, and the Main Street facility is something about commercial reasonable effort to be able to maintain jobs — in other words, if a corporation fires a bunch of people then gets federal taxpayers money, you're fine with that?" Warren responded.
Mnuchin called Warren's characterization "unfair" and said those issues with discussed with both parties in Congress.
Sen. Jon Tester, D-Mont., urged Mnuchin for more transparency surrounding the CARES Act. While Mnuchin argued that every dollar spent of the $500 billion under his purview is listed on the Treasury Department's website, only a small fraction of that money has been disbursed, and there has been little transparency around Paycheck Protection Program recipients.
Sens. Thom Tillis, R-N.C., and Jerry Moran, R-Kan., pressed Mnuchin to ensure businesses wouldn't "fall through the cracks" between PPP and the Main Street Program because of their size. But in response to questions about unequal access to PPP loans for minority-owned businesses, which were largely shut out of the first round of funding due to competition with larger, more resource-rich businesses, Mnuchin implied that the issue has been resolved.
"One of the things we are very pleased about the additional money is that the average loan size has come down considerably. I think we all had certain concerns about in the first tranche how larger companies were prioritized. I believe that's now been corrected. I also couldn't be more pleased how we've been able to get sole proprietors and others into the program. We still have a significant amount of money left, but we are very much willing to consider the bipartisan request of reserving money for CDFIs at the end and making sure the underserved communities are properly served in this program," Mnuchin said.
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Mnuchin said there is a desire for a "technical fix" to a time limitation issue with PPP loans. Yesterday, Trump heard from members of the National Restaurant Association, who told him they would prefer to have 24 weeks, rather than the eight weeks allowed under law, to spend their PPP loans on payroll, in the face of lengthy mandated shutdowns.
"Companies are really having issues to not necessarily being able to use it during those eight weeks. They don't want more money, but want flexibility that they can use it in longer than an eight-week period," Mnuchin said.
Aid to state and local governments was also raised at the hearing, with many senators pressing Mnuchin on the importance of preventing layoffs among teachers, firefighters and police officers.
Powell would not weigh in on policy proposals to help state and local governments but did provide a reminder that the stakes are high.
"Something like 13% of the work force is in state and local government. A lot of the critical services that people rely on day to day are you know, provided at the state and local level. With ... balanced budget provisions in state constitutions means that when revenue goes down sharply, it can mean job cuts or service cuts. So, those are all important things to consider in going forward," Powell said.
What to know about coronavirus:
- How it started and how to protect yourself: Coronavirus explained
- What to do if you have symptoms: Coronavirus symptoms
- Tracking the spread in the U.S. and worldwide: Coronavirus map