‘The Federal Reserve has been entrusted with an important mission, and we have taken unprecedented steps in very rapid fashion over the past few months,’ Chairman Jerome Powell said in prepared testimony.
Photo: Jacquelyn Martin/Associated PressFederal Reserve Chairman Jerome Powell said the central bank will use its “full range of tools to support the economy” as a result of the economic shock caused by the coronavirus pandemic in testimony prepared for delivery to a congressional panel on Tuesday.
Mr. Powell and Treasury Secretary Steven Mnuchin are set to appear by videoconference before the Senate Banking Committee on Tuesday morning as part of regular testimony required by the $2 trillion economic-relief package President Trump signed into law in March.
The legislation provided the Treasury with $500 billion to provide direct aid and to backstop credit markets, including $454 billion to cover losses in Fed lending programs.
The Fed is in the process of establishing operations to lend to businesses, cities and states, an unprecedented expansion of the central bank’s powers to support the U.S. economy during a period of severe distress. The Treasury has provided $195 billion so far to indemnify the Fed against losses in those lending programs.
One open question is how the Treasury plans to allocate the remainder of that money. The remaining $259 billion will be used to “create or expand programs as needed, as we continue to monitor a variety of economic sectors closely,” said Mr. Mnuchin.
Mr. Mnuchin said he expected economic conditions to improve in the second half of the year in his prepared testimony, which was released Monday afternoon by the Senate Banking Committee.
Mr. Powell didn’t announce any new programs in his testimony, and instead recapped the steps the central bank has taken since it cut interest rates to near zero in mid-March.
“The Federal Reserve has been entrusted with an important mission, and we have taken unprecedented steps in very rapid fashion over the past few months,” Mr. Powell said in his prepared testimony.
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Those actions have helped buoy asset values, and the Fed’s trickiest task now is to get the programs up and running. In one particular novel operation, the central bank will lend through banks to middle-market firms that are too large for aid from the Small Business Administration and too small to borrow in Wall Street debt markets in a forthcoming Main Street Lending Program.
Mr. Powell said the Fed would continue to adjust the terms for lending operations “as we learn more” about borrower demand.
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