Treasury Secretary Steven Mnuchin, Federal Reserve Chairman Jerome Powell and representatives from both parties agreed on at least one point at a hearing Tuesday: The economy needs more relief from Congress to sustain the recovery from the coronavirus.
Despite that broad consensus, Congress, paralyzed by partisanship six weeks before the election, might not act.
Mnuchin, who has led relief bill negotiations for Republicans alongside White House Chief of Staff Mark Meadows, said at a House Financial Services Committee hearing that he supported a targeted package focused on schools and the most affected parts of the economy.
“It should be focused on kids and jobs, and areas of the economy that are still hard-hit — particularly areas such as the travel business and restaurants,” Mnuchin said. “I think there’s broad bipartisan support for extending the [Paycheck Protection Program] to businesses that had revenue drops for a second check.”
Mnuchin had previously expressed support for proposals that would allow businesses that suffered significant revenue drops from COVID-19 to apply for a second round of the Small Business Administration’s Paycheck Protection Program at terms even more favorable than the original PPP’s forgivable loans. Mnuchin also reiterated the administration’s support for another $1,200 payment to most taxpayers.
While the employment rate has improved from the sudden cratering in the spring, Powell noted that the jobs market hasn’t nearly returned to pre-pandemic levels and wouldn’t get there soon without more help from Congress.
“We still have 11 million people out of the 22 million who were laid off in March and April,” Powell said. “That’s more people than just during the global financial crisis, as I’m sure you know. There’s a lot of work to do there — and you know our policies will support that — but it will go faster for those people if it’s all government working together.”
Powell said that businesses still struggling due to the pandemic need direct fiscal aid — not more lending, which is all the Fed can provide. He also noted that the Fed’s projections for economic growth, as well as private estimates, assume Congress will pass additional fiscal support.
Mnuchin seemed open to giving direct bailouts to particularly hard-hit industries, like hotels and restaurants. “We support additional money to small hotels, because that’s what they need,” he said, saying that he was also considering providing relief through additional PPP loans or other SBA lending.
Popular support for relief
With the election just weeks away, 89 percent of voters want another coronavirus economic aid package, according to a Financial Times-Peter G. Peterson Foundation poll released Tuesday. While 39 percent of voters faulted both sides for failing to pass another stimulus bill, 26 percent of voters placed the blame on Republicans, slightly more than the 23 percent who pointed fingers at Democrats.
The GOP-controlled Senate considered a relatively small $650 billion aid package earlier in September but couldn’t get any Democrats to support its passage. That bill had a net cost of roughly $300 billion over a decade thanks to being partially offset by repurposing funds originally set aside for business lending programs in prior relief laws. The Democrat-led House passed a $3.4 trillion relief bill in May.
Negotiations over the summer between Democratic leaders and the White House narrowed the gap, but talks still seem stalled with a $700 billion gulf between Democrats’ $2.2 trillion demand and the Trump administration’s latest offer of $1.5 trillion — considerably more than the $1 trillion limit some Senate Republicans prefer.
Additional aid to state and local governments remains the major sticking point in talks. Democrats, urged on by public-sector unions, want to provide a robust bailout to state and municipal budgets decimated by the pandemic — a move most economists agree would significantly aid the nation’s economic recovery. But Republicans have balked, arguing in part that the additional funds aren’t needed and that they would only reward profligate states for failing to save rainy day reserves.
Financial Services ranking member Patrick T. McHenry, R-N.C., on Tuesday urged both sides to concede more.
“We need to come to terms,” McHenry said. “That means that Democrats and Republicans need to move to the middle, and I would commend Secretary Mnuchin for his negotiations, and his willingness to move the ball forward on behalf of the American people, even in the midst of a crazy politics that we’re currently experiencing.”
But other Republicans preferred to blame Democrats for their unwillingness to budge.
“I am sick of the partisan politicking, partisan wish lists, that should have no place in this conversation,” said Rep. Ann Wagner, R-Mo.
Mnuchin also said he would support reallocating some of the unused funds given to Treasury to support the Fed’s emergency lending programs. Out of the $454 billion appropriated, Mnuchin said he’d support taking $200 billion to help cover the cost of additional fiscal relief.
The Fed’s 13 emergency lending programs have been credited with calming financial markets despite being only lightly used. Representatives from both sides of the aisle, however, said mid-sized businesses needed the Main Street Lending Program to support more lending.
The Fed’s Main Street Lending Program was meant to fill the gap between the SBA’s Paycheck Protection Program and the Fed’s support of corporate debt markets, which serve larger companies. But so far the program has funded only 230 loans totaling $2 billion.
House Financial Services Chairwoman Maxine Waters, D-Calif., asked Mnuchin if he’d support dropping the minimum loan size from $250,000, noting that Treasury and the Fed had already lowered it from $1 million.
“I’d be fine lowering that to $100,000 and will consult with Chair Powell afterwards,” Mnuchin said.
But Powell said that might not do much. “There’s very little demand in the facility below a million dollars,” he said. “I think extending credit in those small quantities would require a facility built from the ground that would be quite different than Main Street.”