Staggering job losses. Severe economic contraction. A historically unprecedented – and, to this point, uneven – emergency federal response.
The economic side of the ongoing public health crisis will go under the microscope Tuesday morning as the two primary architects of that response testify on Capitol Hill: Treasury Secretary Steve Mnuchin and Federal Reserve Chairman Jerome Powell.
Bottom line: Lawmakers in both parties have registered a myriad of complaints and concerns over the trillions of dollars appropriated for a network of programs aimed at forestalling domestic economic collapse. Those issues – from the massive small business emergency lending program, to funding for state and local governments, to bailouts for airlines, to the temporary easing of banking regulations – will all be front and center of the first major oversight hearing since the passage of the $2 trillion CARES Act.
Why this hearing is on the schedule: This Senate Banking Committee hearing is required by the CARES Act, the $2.2 trillion emergency economic relief package – the largest in US history. This hearing is the quarterly oversight hearing of the Federal Reserve and Treasury’s actions in accordance with that law.
The pressure points
The scope and sale of the federal economic response to the coronavirus pandemic has never been seen before. But with size – and the head snapping speed through which the programs came together – comes the potential glitches, hiccups or serious problems.
Expect concerns about all three of those negative consequences to be put on display in full Tuesday – and expect, at various points, this to turn into fiery hearing with sharp exchanges, aides say.
The Paycheck Protection Program
The first major program kicked into gear from the CARES Act, it has led to more than 4.3 million loans totaling more than $513 billion. But the program, from its rocky rollout to the uneven distribution of funds, to the types have businesses that received money, has become the biggest area of concern for lawmakers on Capitol Hill. While the program is run through the Small Business Administration, Mnuchin and Treasury have by all accounts taken the lead role in crafting, rolling out, and attempting to change various pieces of its implementation throughout the last several weeks. Expect it to be the subject of dozens of questions today.
Also hanging out there: the administration has, to this point, refused to release the list of companies that have obtained loans through PPP. This lack of transparency has irked lawmakers on both sides of the aisle.
Fed Lending Facilities
The true purpose of the hearing is oversight of the $500 billion appropriated to the Treasury in the CARES Act for rescue/response programs. That includes $46 billion for airlines and an additional $454 billion to be sent to the Fed to serve as the baseline for lending facilities that can be leveraged up by trillions of dollars.
Yet those programs are still barely off the ground – and lawmakers have raised a series of concerns about their status, their structure and whether they will actually be effective in aiding companies of all sizes.
Of particular interest: the Main Street Lending Program, which is designed to provide loans to small and medium-sized businesses that were in good financial standing before the pandemic. The Fed has revised, multiple times, the terms and qualifications for the facilities, but they still haven’t launched yet. The bottom line is it is both extremely complicated, and territory the Fed simply has never ventured into before. Lawmakers, especially those involved in the crafting of the CARES Act, are intensely interested in what these facilities will look like – and when they’ll get the green light.
As Powell says in his prepared remarks: “Importantly, with these and other facilities that the Federal Reserve has not employed before, public input has been crucial in their development.”
State and local funding
This has become one the central points of disagreements on Capitol Hill – how (and whether) to direct more funds to states and localities as their budgets are decimated by the pandemic response. The CARES Act included $150 billion. Democrats are pushing for hundreds of billions more. Republicans are largely split on the issue, with significant concern inside the GOP about bailing out states that were facing budget woes prior to the pandemic.
The Fed has also created a lending facility for states and localities to purchase short-term debt directly from US states, counties, cities and certain multi-state entities. The scale of that program – and which localities qualify – is the subject of intense interest on Capitol Hill.
Phase Four
Senate Republicans have called for a pause in stimulus spending in response to the Covid-19 outbreak.
House Democrats have already passed another $3 trillion economic recovery bill. The future of the next recovery/stimulus package is about as clear as mud right now, which makes Powell’s words all the more important. In recent weeks he’s stressed that there may be need for further fiscal action by Congress. Democrats have repeated those words over and over again as evidence Congress needs to act now on the next package. There’s no doubt there will be a battle over Powell’s views on that front today, creating a very thin line for the Fed Chair, who like all Fed chairs is reticent to get involved in Congressional debates, to walk.
Powell vs. Mnuchin on the economy
Powell has made very clear in recent public remarks the depth of the current crisis hasn’t been seen in more than 80 years and that the recovery timeline remains unclear due to the number of unknowns associated with the pandemic. Mnuchin has been far more upbeat about the future, pledging a turnaround in the third and fourth quarters – and emphasizing future congressional action should wait until its clear what the CARES Act has accomplished.
The two pillars of the US economy get along well, by all accounts, and speak regularly given how closely intertwined Treasury and the Fed are in the economic response. But the split in public projections of what happens with the economy has been noticeable in recent weeks.
Who to watch
Republicans
- Sen. Mike Crapo of Idaho: Crapo is the chairman of the Senate Banking Committee and was central to the drafting of the programs Treasury and the Fed are now putting into place. Quiet and reserved in public, but a, if not the, central player for Republicans on this front.
- Sen. Pat Toomey of Pennsylvania: Toomey is a member of the Congressional Oversight Commission overseeing the Fed/Treasury and has made clear he has several major questions for Powell and Mnuchin
Democrats:
- Sen. Sherrod Brown of Ohio: Brown is the top Democrat on the panel and a sharp critic of Wall Street
- Sen. Elizabeth Warren of Massachusetts: Warren was on the panel that oversaw the 2008 bailout and has become known for her viral interrogations of witnesses at Senate hearings
- Sen. Mark Warner of Virginia: Warner took the lead role on the Democratic side crafting the Fed/Treasury piece of the CARES Act and is intimately involved in their operations and rollouts.
- Sen. Brian Schatz of Hawaii: Schatz has been a keen observer of the Fed’s actions in the last two months – and has raised a number of concerns about the direction the central bank has gone, or may go, to this point.