Mnuchin and Chairman Powell Answer Questions From Congress
Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell defended the Federal Reserve’s policy decisions to Congress, including its choice to invest in riskier companies through emergency lending programs, The Wall Street Journal reported.
As Congress gave funds to the Fed and Treasury Department through the Cares Act, it didn’t specify payroll requirements for loans extended via Fed programs while supporting the program with up to $454 billion congressional funding.
Moreover, although the Fed demanded small and midsize businesses who accept funds via Main Street Lending Program to make “commercially reasonable efforts” to maintain payrolls, the Fed didn’t set specific requirements to prevent companies from laying off staff during the pandemic. These policy choices were put in scrutiny.
The Fed explained by saying that it took a long-term view with setting up the current standard. “The goal of the program is to support the health of businesses through this difficult period so they are able to contribute to a robust economic recovery,” Mnuchin and Powell said. “Employees are critical contributors to the success of a business, and commercially reasonable efforts to maintain employment contribute to a faster recovery and to the health of a business in the long run.”
At the Wednesday hearing, Powell told the House Financial Services Committee the Fed didn’t set additional limits to Congress’ existing mandates because “we’re implementing the law that you passed,” and the Fed has no rights in rewriting laws.
The Fed said, despite not planning to evaluate borrowers’ efforts to retain the workforce, it will disclose the firms that received loans and the amounts borrowed. “Because of the variety of approaches we expect from borrowers, the agencies will monitor the program’s impact on the economic recovery and employment broadly rather than on a borrower-by-borrower basis,” Mnuchin and Powell said.
While it is difficult to quantify the effects of the Fed and the Treasury’s economic policies, the congressional oversight panel found some actions more effective than others. For example, the private corporate debt issuance has boomed while the results of aids to small and midsize businesses are less certain.