U.S. Fed will 'push hard against negative interest rates': CIBC's Bipan Rai
Federal Reserve Chairman Jerome Powell faced questions from U.S. lawmakers Wednesday over the central bank’s help for Americans compared with markets during the coronavirus pandemic.
“Our actions were in no way an attempt to relieve pain on Wall Street,” Powell told a hearing before the House Select Subcommittee on the Coronavirus Crisis.
Powell also reiterated his support for further fiscal stimulus, saying it is “unequaled” by anything else. Congressional stimulus talks have stalled since early August with both political parties about US$1 trillion apart in their offers.
On its Main Street Lending Program, the Fed chief said that he and his colleagues have “done basically all of the things that we can think of.”
“We’re looking to do more,” he added but said the central bank isn’t planning to make other big changes to the Main Street facility.
“There’s nothing major that we’re looking at now,” Powell said. “There is nothing major that we see now that would be consistent with opening it up further.”
Powell answered multiple, pointed questions about the efficacy of the Main Street program, which has been slow to start and seen little uptake from small-to-medium sized businesses.
One of the Fed’s emergency measures unleashed during the pandemic, the facility has seen low usage -- just about 0.3 per cent of its US$600 billion capacity -- and has been criticized by lawmakers and companies alike.
That compares with the Fed’s programs set up to keep credit flowing to bigger companies, which have generally been seen as a success in stabilizing job losses there and bolstering stock and bond markets.
Boston Fed President Eric Rosengren, in separate remarks Wednesday, pointed his finger at the nation’s largest banks to explain the relative lack of activity in Main Street. The reserve bank administers the program. Rosengren said that big banks have largely avoided participation. Banks making at least six Main Street loans all had assets under US$20 billion, he said.
Banks have been reluctant to apply more lenient underwriting standards to the Main Street loans, 5 per cent of which will remain on bank balance sheets after they sell the remaining 95 per cent to the Fed.
Last week, following the Fed’s September policy meeting, Powell said that the central bank was working on changes to the program, saying they were aiming to make it available “pretty much to any company that needs it and can service a loan.”
The Fed on Friday tweaked guidance to banks, urging them to underwrite loans based on the borrower’s pre-pandemic conditions and its potential post-pandemic prospects.
Powell was asked about lowering the minimum loan size in the program, where the smallest possible loan is currently US$250,000.
He said that credit, via the banking sector, is pretty broadly available for the companies targeted by the Main Street program, so those firms may be able to get lending outside of the Fed’s facilities.
“The current facility would not work for much smaller loans,” Powell said. “We’d have to start a new facility that had much less protection for the taxpayer.”
He added that the Paycheck Protection Program, which has expired, may be better suited to companies needing smaller loans.
Powell has a busy week of testimony before Congress. He was questioned along with Treasury Secretary Steven Mnuchin Tuesday on the need for more stimulus to shore up the U.S. economy’s recovery from the coronavirus slump.
The Fed’s Main Street program was also a focus of Tuesday’s hearing.
Read More: Powell and Mnuchin Set to Get Grilled on Need for More Stimulus
On Thursday, Powell and Mnuchin are scheduled to testify together again -- this time before the Senate Banking Committee -- on the economic response to the pandemic.