$500 Billion Coronavirus Fund Has Barely Been Used

$500 Billion Coronavirus Fund Has Barely Been Used

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Plus: Powell pushes for more
Monday, May 18, 2020

Powell Again Urges Congress to Do More; Hassett Says Another Relief Bill May Not Be Needed

Federal Reserve Chair Jerome Powell again cautioned that the central bank and Congress may need to do more to prevent longer-term economic damage from the coronavirus pandemic — and that concerns about the massive federal budget deficit shouldn’t prevent such action.

In an interview with “60 Minutes” that aired Sunday night but was conducted last Wednesday — the same day he gave a market-rattling speech in which he said that additional fiscal stimulus “could be costly but worth it” — Powell reiterated that the Fed and Congress have both acted aggressively.

“The Congress has done a great deal and done it very quickly. There is no precedent in post-World War II American history that's even close to what Congress has done. They have passed $3 trillion in stimulus, which is 14% of GDP. It is vastly larger than anything they've ever done,” Powell said.

He then added: “And the question is, will it be enough? And I don't think we know the answer to that. It may well be that the Fed has to do more. It may be that Congress has to do more. And the reason we've got to do more is to avoid longer run damage to the economy. If we let people be out of work for long periods of time, if we let businesses fail unnecessarily, waves of them, there'll be longer term damage to the economy. The recovery will be slower. The good news is we can avoid that by providing more support now.”

Asked what kind of support lawmakers should provide, Powell offered broad suggestions: “I would say, if I may, that policies that help businesses avoid avoidable insolvencies and that do the same for individuals -- keep workers in their homes, keep them paying their bills.” He also said that additional aid to state and local governments is “something that deserves a careful look.”

Powell also again shot down the idea of lowering interest rates into negative territory, questioning whether they boost economic activity: “I continue to think, and my colleagues on the Federal Open Market Committee continue to think that negative interest rates is probably not an appropriate or useful policy for us here in the United States.”

White House adviser says another stimulus bill may not be needed: Powell’s carefully worded comments — widely seen as urging lawmakers to provide more support for the economy — place the Fed chair, a Republican, squarely in the middle of a brewing political battle. House Democrats last week pushed through a $3 trillion coronavirus relief package. Republicans, including President Trump, by and large say they prefer to “pause” and assess the effectiveness of the trillions of dollars in relief funds already provided.

White House economic adviser Kevin Hassett said Monday that another phase of coronavirus legislation may not be necessary at all. “If the economy continues the momentum that we’re beginning to see over the last couple of weeks of data, then I think that one might conclude that the stimulus we’ve already passed is enough,” Hassett told reporters Monday. “But if that doesn’t happen, we’re really learning everyday a little bit more about how the economy responds to this.”

Hassett reportedly acknowledged that the Paycheck Protection Program for loans to small business may need additional funding and that the government may still need to provide more help to hard-hit business sectors. But his comments stand in contrast to the Fed chair’s warning that, while the economy will likely begin to recover over the second half of the year, the unemployment rate could hit 25% and the economic pain “could stretch through the end of next year.”

What’s next: Powell will appear (remotely) before the Senate Banking Committee Tuesday morning. “Expect senators on the banking panel to try eliciting more support for their preferred view when he appears before them,” The Washington Post’s Tory Newmyer writes.

Treasury Has Hardly Spent Its $500 Billion Coronavirus Relief Fund

The Treasury Department has disbursed just $37.5 billion out of $500 billion in emergency coronavirus funds approved by Congress as part of the CARES Act passed in March, according to the first report of the congressional oversight commission monitoring the implementation of the law.

Airlines still waiting on billions from relief fund: Congress allocated $46 billion for aid to the air travel industry, but the Treasury Department has yet to disburse any of the money. The funds include $25 billion for airlines and $17 billion for related businesses that are critical to national security.

Lending programs not yet lending: The Federal Reserve and Treasury last month announced five lending facilities meant to help prop up various segments of the economy, including “Main Street” lending programs targeting small- and mid-sized businesses, a program for states and municipalities, and a corporate-bond buying facility. Only one of those programs is fully up and running. Treasury disbursed $37.5 billion to the corporate facility, called the Secondary Market Corporate Credit Facility (SMCCF), earlier this month.

“The Treasury and the Fed have announced these facilities but, with the exception of the SMCCF, the Treasury has not invested in them yet, nor has the Fed put them into operation,” the oversight report says. “Their size and scope may also grow as the Treasury has only pledged $185 billion of the $454 billion appropriated in the CARES Act for investments in Fed lending facilities.”

Changes to lending terms: “The report describes how even before any money from the Main Street program has been lent, the terms of the program already have evolved,” The Washington Post’s Erica Werner reports. “The changes include increasing the size of loans, eliminating a requirement that companies have to attest they need money ‘due to the exigent circumstances presented by’ the coronavirus, and modifying a requirement that companies make ‘reasonable efforts’ to maintain payroll and retain employees during the term of a loan. Instead, they will be required to make ‘commercially reasonable efforts’ to do so.”

The Fed and Treasury also expanded the $35 billion facility to buy debt from states, cities and counties, after criticism that the original guidelines left only a few dozen cities and counties eligible to participate. The facility will now buy notes from counties with a population of at least 500,000 residents (instead of the original floor of 2 million residents) and cities with a population of at least 250,000 residents (instead of a million residents). The program will also buy notes that mature within at least three years instead of two years.

The bottom line: Congress may have moved with unusual speed to provide money to address the pandemic, but while the Treasury Department quickly implemented other elements of the CARES Act, the report highlights how the lending programs have gotten off to a slow start and how many questions remain to be answered about how they will function. Roughly a third of the new report is filled with questions for the Treasury Department and the Federal Reserve about the programs.

Similar questions still hang over the oversight commission and broader oversight of the trillions in new spending approved by Congress. The five-member commission still doesn’t have a chairman, as House Speaker Nancy Pelosi and Senate Majority Leader Mitch McConnell have yet to agree on a person to fill that post. The Senate also has yet to confirm a special inspector general to oversee the $500 billion Treasury fund.

The commission’s next report is reportedly due in mid-June.

Fiscal Flashes

A new breed of “deficit scold”: “The coronavirus pandemic has brought a new sort of deficit scolding to Capitol Hill, with economists and lawmakers warning the United States is not borrowing enough to carry the nation through a debilitating recession that could turn into a second Great Depression,” Jim Tankersley wrote at The New York Times this weekend. Economists say that the deficit spending needs to be effectively targeted — but that the United States can afford to borrow more. “Any sensible policy is going to have us racking up the deficit for a long time, if you can,” Harvard Economist Ken Rogoff, whose work was often cited by proponents of deficit reduction during the Obama administration, says. “If we go up another $10 trillion, I wouldn’t even blink at that now.” (New York Times)

Mark Cuban proposes $1,000 checks every two weeks: The Paycheck Protection Program has failed, says billionaire entrepreneur Mark Cuban, and it’s time to supplement it with a plan to send $1,000 checks to American households every two weeks for the next two months — with the requirement that the money be spent within 10 days. “It's time for trickle up economics,” Cuban said in a tweet Sunday. “The only thing that will save businesses is consumer demand. No amount of loans to businesses will save them or jobs if their customers aren’t buying.” Cuban said the plan would cost about $500 billion, but would help keep the economy running until growth returns organically. Cuban also called on the government to hire millions of people to help test for the coronavirus and track those who have been exposed to it.

The president says he's taking hydroxychloroquine

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Op-Ed of the Day: More Pressure for Medicare Expansion?

The coronavirus crisis may generate greater demand for a buy-in option for Medicare as older workers scramble to find affordable health care plans in the wake of the coronavirus crisis, says Drew Altman of the Kaiser Family Foundation.

Writing at Axios on Monday, Altman points out that more than 2 million workers between the ages of 55 and 64 have lost their jobs since the pandemic struck, and speculates that many will struggle to find affordable health care coverage.

“Medicaid will cover many of the newly uninsured, though not in states that haven’t expanded the program,” Altman says. “The Affordable Care Act will help many others maintain coverage, but those plans often come with high deductibles. COBRA is available to people who lost jobs that offered insurance, but it’s often prohibitively expensive.”

The longer the crisis lasts, and the worse off older voters under the age of 65 are, the greater the likelihood that Medicare expansion will be on the table next year, especially if there are significant changes in Washington following the election: “Millions of uninsured 55-65 year-olds could add new urgency to calls for a Medicare buy-in if Democrats control the White House and Congress in 2021.”


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