US senators are set to quiz the heads of the Federal Reserve and the Treasury department about America’s economic response to the coronavirus pandemic, amid charges from Democratic lawmakers that struggling families are not benefiting enough from almost $3tn in fiscal stimulus passed since the crisis began.
Jay Powell, the Fed chairman, and Steven Mnuchin, the Treasury secretary, will appear before the Senate banking committee on Tuesday to testify about the Cares Act, a $2.2tn package of measures approved in March that is the cornerstone of federal fiscal support for the US economy.
Mr Powell and Mr Mnuchin will be testifying in the midst of the grimmest US economic conditions in decades, after more than 36m Americans filed for unemployment benefits in less than three months.
Joblessness has soared to 14.7 per cent in April on the back of the rolling business shutdowns and stay-at-home orders, and is expected to keep rising in the coming weeks. Financial markets, which were under severe stress in March, including big declines in US equity markets, have since stabilised, partly because of moves by the Fed to ease monetary policy and support credit markets, and partly because of the expansive fiscal stimulus.
In his prepared remarks, released on Monday evening, Mr Powell said the Fed’s response to the crisis, which included slashing its main interest rates to zero, boosting asset purchases, and establishing crisis-era facilities to lend money across the economy, was “guided by our mandate to promote maximum employment and stable prices for the American people, along with our responsibilities to promote stability of the financial system”.
Mr Powell added: “We are committed to using our full range of tools to support the economy in this challenging time even as we recognise that these actions are only a part of a broader public-sector response.”
Mr Mnuchin labelled the stimulus bill the “single largest economic relief effort in the history of our country”.
But leading Senate Democrats are preparing to grill Mr Powell and Mr Mnuchin on the divergence between Wall Street’s rebound and the continued travails of many households as they grapple with lost income, lost health insurance and lost food security.
Sherrod Brown, the Ohio senator and top Democrat on the banking committee, will say in his opening remarks that $500bn set aside in the stimulus bill for the Fed and Treasury to make loans to struggling companies was not “getting to workers”.
“From what we know so far, it does not appear that this administration or the Federal Reserve are making workers their priority,” Mr Brown will say, according to excerpts of his opening statement. “Today I look forward to hearing from both of you, Mr Secretary and Chair Powell, not about what you’re doing for big banks or big corporations and how you expect that money to trickle down, but how you’re making sure the money and authority Congress gave you actually help the people who make this country work.”
“I have a lot of questions about accountability and oversight,” Tina Smith, a Democratic senator from Minnesota, wrote on Twitter on Monday. “Hoping for answers, not spin,” she said.
A main focus of lawmakers’ attention is likely to be the “Main Street Lending programme” — which in the Cares Act directed $75bn in equity from the US Treasury to support up to $600bn in Fed lending to medium-sized businesses. The scheme has yet to get off the ground, as the Fed has had to fine-tune the eligibility criteria, raising concerns that its design may not be appropriate for many ordinary companies.
A separate government programme to provide forgivable loans to small businesses has attracted huge demand and had to be expanded to almost $670bn, but faced criticism for being biased towards larger, better-connected businesses rather than the mom-and-pop shops it was intended for.
The hearing will also take place against the backdrop of clashes on Capitol Hill over the scope and details of a new stimulus bill. Democrats who control the House of Representatives last week passed a bill that included $3bn in additional spending on help for state and local governments and the unemployed, but Republicans dismissed it immediately.
While Mr Powell has strongly suggested that additional fiscal support would be needed to avoid longer term damage to the economy, the Trump administration has been more cagey, suggesting that more time was needed to assess the effectiveness of existing policies, and pointing to new tax cuts as an alternative way to boost consumption and investment.