Powell grilled by Congress over how Fed is helping Main Street
Federal Reserve Chairman Jerome Powell faced questions from U.S. lawmakers Wednesday over the central bank’s help for Americans compared with markets.
“Our actions were in no way an attempt to relieve pain on Wall Street,” Powell said Wednesday in a hearing before the House Select Subcommittee on the Coronavirus Crisis.
The Fed chief said that with its Main Street Lending Program, the central bank has “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 take up — just about 0.3% of its $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 public companies, which have generally been seen as a success in stabilizing job losses there and bolstering stock and bond markets.
Banks have been reluctant to apply more lenient underwriting standards to the Main Street loans, 5% of which will remain on bank balance sheets after they sell the remaining 95% 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 working 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 $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.
On Thursday, Powell and Mnuchin are scheduled to testify together again — this time before a Senate committee on the economic response to the pandemic.