“We will continue to do our job,” promises Fed’s Powell as elections drag on
WASHINGTON (Reuters) – Federal Reserve Chairman Jerome Powell has explained the central bank’s thinking behind changes to its mid-market relief loan program, while trying to assure markets that the mission Fed is not discouraged in times of political uncertainty.
Powell’s press conference Thursday, corresponding to a meeting of the Federal Open Market Committee, came days after the Fed announced it was reducing the minimum loan amount to $ 100,000 for Main Street Lending Program companies. The change, intended to boost participation in the coronavirus relief program, came despite Powell’s previous resistance to the cut.
“We’re trying to be responsive – we want eligible businesses to be able to borrow, and we’ll see what the demand will be,” he said.
Powell was also asked about any potential concerns about market turbulence or economic instability resulting from the uncertainty surrounding the presidential election. The election, held on Tuesday, still has no winner, and the Trump administration’s possible legal challenges to vote-counting efforts in key states have been accompanied by protests from supporters of President Trump. and Joe Biden.
While refusing to influence the election, Powell said agencies like the Fed should remain focused on efforts to support the economy, which is still grappling with the coronavirus pandemic.
“I am very reluctant, as you would imagine, to comment on the election directly, indirectly, at all, other than just to say that it is a good time to step back and let the institutions of our democracy do their job. “, did he declare. “So at the Fed here we will continue, as always, to do our job, every day, we will continue to serve the American people by using our tools to support the economy during this difficult time.”
As he has done on several occasions, Powell called for additional fiscal stimulus to mitigate the economic impact of COVID-19.
Although Powell declined to say which fiscal stimulus items Congress should prioritize when considering a package, he stressed that a “whole-of-government approach” with fiscal policy, monetary policy, and fiscal policy. Adequate health would lead to a faster recovery.
“I think we will have a stronger recovery if we can just get at least additional budget support when appropriate,” he said. “Tax policy can do what we cannot do, which is replace lost income for people who are out of work through no fault of their own. “
But the Fed is not short of ammunition, Powell said, adding that the central bank can support financial stability through its emergency lending programs and can support demand through its interest rate policy and its asset purchases.
“I think we are firmly committed to using these powerful tools at our disposal to support the economy during this difficult time for as long as necessary, and no one should have any doubts about it,” he said.
Powell did not say whether the Fed was currently in talks with the Treasury Department to extend the December 31 expiration date approaching for most of the central bank’s emergency lending facilities.
“We believe that the facilities have also generally fulfilled their function, in particular in supporting the flow of credit [and] acting in particular as backstops to private markets, so overall we think the programs have gone well, ”he said.
However, the Main Street Lending Program, through which the Fed purchases stakes in loans from banks to midsize companies, has struggled to attract interest.
From several changes In the program announced last week, the minimum loan amount was cut by more than half, from $ 250,000 to make the program more accessible to small businesses. Businesses with up to 15,000 employees or up to $ 5 billion in annual revenues can now obtain loans of at least $ 100,000 through the $ 600 billion program.
Powell was previously reluctant to make such a change, telling Congress in September that “the current facility would not work for much smaller loans.”
“We will have to start a new facility that would offer much less protection to taxpayers,” he told the House subcommittee on the coronavirus crisis.
But Powell said that since then the Fed has figured out how to modify the program to accommodate smaller loans without creating a whole new facility.
“We’ve heard over and over again that it would be great if we could reduce it to $ 100,000,” he said. “Basically we concluded that we could just change the fee structure to create incentives for that, so we did. “
The Fed has adjusted the fee structure so that lenders are not required to pay transaction fees for qualifying loans below $ 250,000, which could encourage banks to create these smaller loans. The Fed, through its ad hoc vehicle, will also pay lenders 50 basis points per year for servicing loans below $ 250,000.