[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
HYBRID HEARING WITH
THE FEDERAL RESERVE CHAIR
JEROME H. POWELL
=======================================================================
HEARING
BEFORE THE
SELECT SUBCOMMITTEE ON THE CORONAVIRUS CRISIS
OF THE
COMMITTEE ON OVERSIGHT AND REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 23, 2020
__________
Serial No. 116-119
__________
Printed for the use of the Committee on Oversight and Reform
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available on: govinfo.gov,
oversight.house.gov or
docs.house.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
41-958 WASHINGTON : 2020
COMMITTEE ON OVERSIGHT AND REFORM
CAROLYN B. MALONEY, New York, Chairwoman
Eleanor Holmes Norton, District of James Comer, Kentucky, Ranking
Columbia Minority Member
Wm. Lacy Clay, Missouri Jim Jordan, Ohio
Stephen F. Lynch, Massachusetts Paul A. Gosar, Arizona
Jim Cooper, Tennessee Virginia Foxx, North Carolina
Gerald E. Connolly, Virginia Thomas Massie, Kentucky
Raja Krishnamoorthi, Illinois Jody B. Hice, Georgia
Jamie Raskin, Maryland Glenn Grothman, Wisconsin
Harley Rouda, California Gary Palmer, Alabama
Ro Khanna, California Michael Cloud, Texas
Kweisi Mfume, Maryland Bob Gibbs, Ohio
Debbie Wasserman Schultz, Florida Clay Higgins, Louisiana
John P. Sarbanes, Maryland Ralph Norman, South Carolina
Peter Welch, Vermont Chip Roy, Texas
Jackie Speier, California Carol D. Miller, West Virginia
Robin L. Kelly, Illinois Mark E. Green, Tennessee
Mark DeSaulnier, California Kelly Armstrong, North Dakota
Brenda L. Lawrence, Michigan W. Gregory Steube, Florida
Stacey E. Plaskett, Virgin Islands Fred Keller, Pennsylvania
Jimmy Gomez, California
Alexandria Ocasio-Cortez, New York
Ayanna Pressley, Massachusetts
Rashida Tlaib, Michigan
Katie Porter, California
David Rapallo, Staff Director
David Hickton, Select Subcommittee Staff Director
Russ Anello, Chief Counsel
Senam Okpattah, Clerk
Contact Number: 202-225-5051
Christopher Hixon, Minority Staff Director
------
Select Subcommittee On The Coronavirus Crisis
James E. Clyburn, South Carolina, Chairman
Maxine Waters, California Steve Scalise, Louisiana, Ranking
Carolyn B. Maloney, New York Minority Member
Nydia M. Velazquez, New York Jim Jordan, Ohio
Bill Foster, Illinois Blaine Luetkemeyer, Missouri
Jamie Raskin, Maryland Jackie Walorski, Indiana
Andy Kim, New Jersey Mark E. Green, Tennessee
C O N T E N T S
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Page
Hearing held on September 23, 2020............................... 1
Witness
The Honorable Jerome H. Powell, Chair, Board of Governors of the
Federal Reserve System
Oral Statement................................................... 8
Written opening statements and the written statement of the
witness are available on the U.S. House of Representatives
Document Repository at: docs.house.gov.
Index of Documents
----------
No documents were entered into the record during this hearing.
HYBRID HEARING WITH
THE FEDERAL RESERVE CHAIR
JEROME H. POWELL
----------
Wednesday, September 23, 2020
House of Representatives
Select Subcommittee on the Coronavirus Crisis
Committee on Oversight and Reform
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:05 a.m., in
room 2154, Rayburn House Office Building, Hon. James E. Clyburn
(chairman of the subcommittee) presiding.
Present: Representatives Clyburn, Waters, Maloney,
Velazquez, Foster, Raskin, Kim, Scalise, Jordan, Luetkemeyer,
Walorski, and Green.
Chairman Clyburn. Good morning. The committee will come to
order.
Without objection, the chair is authorized to declare a
recess of the committee at any time.
I now recognize myself for an opening statement, and today
I am pleased to welcome Reverend--Federal Reserve Chair Jerome
Powell. Thank you, Chair Powell, for appearing before us today.
Our goal today--well, that happens to me very often. Our goal
today is to understand the course and scope of the outgoing--
ongoing jobs crisis in America, what the Fed is doing to
address it, and what else needs to be done.
Chairman Powell, you said back in April, and I quote,
``This is first and foremost a public health crisis.'' In July,
former chairs Ben Bernanke and Janet Yellen appeared before the
select subcommittee. Quoting from their testimony, ``Nothing is
more important for restoring economic growth than improving
public health.'' I agree. This health crisis has dragged on for
eight months, and we just passed a tragic milestone of 200,000
Americans killed, far more than any other country on earth. Yet
the Trump administration still refuses to show leadership and
implement a science-based national strategy to address this
ongoing public health emergency. The President continues to
reject the advice of scientific experts on testing, social
distancing, and wearing masks. These failures have allowed the
virus to spread, causing millions of infections, tens of
thousands of preventable deaths, and one of the worst economic
crises in our Nation's history.
Let's be clear. Despite the rosy picture this
administration tries to paint, many American families are still
struggling, and millions of small businesses are on the verge
of collapse, even as investors reap record profits and gains in
the stock market. Nearly 30 million Americans continue to rely
on unemployment benefits. While most high wage jobs have
returned, the employment rate for lower wage workers is still
down more than 16 percent since January 2020, and an increasing
number of these jobs are lost permanently. In August, permanent
job losses skyrocketed to 3.4 million, half a million more than
the month before and more than two and a half times what they
were in January.
Job losses have dire consequences. In one recent survey, 12
percent of households with children indicated that they did not
have enough food to eat in the last seven days. The numbers are
even worse for minority families, with 16 percent of Hispanic
households with children and 20 percent of Black households
with children without enough food in the previous week. In the
richest country in the world, tens of millions of children
don't have enough to eat.
Congress helped keep an estimated 12 million Americans out
of poverty when we passed the CARES Act back in March. But the
expiration of Federal unemployment benefits and other relief
measures this summer put millions of Americans at risk of
hunger, homelessness, and mounting debt.
We need to provide additional economic assistance for
American workers and families, especially low-income Americans
and communities of color that have been hit hardest. The
legislation we enact must comprehensively address the enormous
scope of the problems we face. Again, quoting you, Chairman
Powell, from last week, ``The current economic downturn is the
most severe in our lifetimes, and more fiscal support is likely
to be needed.'' Again, I agree. The Federal Reserve has an
essential role to play in reviving the economy, and it must do
so in a way that is fair and equitable. Unfortunately, the
Fed's actions so far have prioritized big businesses over the
small ones that are most at risk, and it has failed to protect
American workers.
Today, the select subcommittee released a staff report
``Examining the Fed's Purchases in Wall Street's Corporate Bond
Market.'' The report finds that, while the Fed helped many
large companies by purchasing bonds, the terms of these
purchases fail to include any protection for these companies'
workers. Without worker protections, the companies whose bonds
have been bought by the Fed have prioritized the interests of
shareholders over workers. Layoffs have continued, even while
dividends have been issued.
While I recognize that, during severe economic crises,
Federal Government assistance for large corporations can be
necessary to support the wider economy, public support must
always be undertaken to achieve maximum public benefit. I
believe the terms of the Fed's purchase of the corporate bonds
could have been improved so that benefits were more equitably
shared by workers as well as investors.
Of course, assistance for big businesses is never a
replacement for assistance for small businesses and state and
local governments. Small business revenues are down nearly 20
percent since January, and states and localities face budget
shortfalls of $1 trillion. Regrettably, the Fed's lending
programs designed to help these entities have failed to make an
impact because of overly restrictive rules and onerous loan
terms. The Fed's key programs, including the Main Street
Lending Program and the Municipality Liquidity Facility, have
barely loaned any money at all. Of the combined $1.1 trillion
in available lending, 99.7 percent remains unspent.
The Main Street program has been plagued by delays, overly
restrictive loan terms, a $250,000 loan minimum that is out of
reach for most small businesses, and a lack of employee
retention safeguards. The municipal program has been plagued by
onerous interest rates and a short repayment period, rendering
the facility useless to most jurisdictions. We must do better
across the board. The Trump administration must finally
implement a national plan to get the coronavirus pandemic under
control. Republicans must agree to a comprehensive recovery
package like the Heroes Act that provides for necessary
resources to stop the spread of the virus and alleviate
economic harm. And the Fed must use its tremendous resources
and market power not just to bail out wealthy stockholders but
also to protect low income workers and struggling small
businesses that are the backbones of this country's economy. I
urge my colleagues on both sides of the aisle and throughout
the Federal Government to seek common ground and meaningful
solutions to help the millions of Americans still struggling
through this crisis. We must find solutions based on science
and economies and economics, not politics or ideology.
Thank you for being here, Mr. Chairman. I now yield to the
ranking member for his opening statement.
Mr. Scalise. Thank you, Mr. Chairman, for calling today's
hearing.
And, Chairman Powell, thank you for coming before us today,
and thanks for your service to our country. Earlier this year,
we had the chairs of the Federal Reserve, former chairs, Ben
Bernanke and Janet Yellen, come before our committee. I would
venture to say, Chairman Powell, that the challenges you've
faced during your tenure far exceed things that we've seen from
previous Fed chairmen. And as we work together through this, I
just want to thank you for keeping a steady hand at the Federal
Reserve which has been so important as we start seeing this
economic recovery.
China, Mr. Chairman, has long declared a goal of overtaking
the United States, both economically and militarily. At the
outset of this pandemic, China lied about the emergence of the
most dangerous virus we've seen in over 100 years. China
refused to allow American scientists into their country to help
assess the threat, despite the fact that many scientists within
China were asking for our help. I was in some of those meetings
at the White House with Dr. Fauci and others when the Trump
administration was trying to get our best doctors into China to
find out what was happening, and it was the Chinese Communist
Party who refused our ability to find that out.
At the same time China was closing down domestic travel,
they were sending thousands of people a day overseas, including
here into the United States, setting the table for this global
pandemic. In the months of January and February, China hoarded
medical PPE. The Chinese Communist Party actually banned the
exports of surgical gloves, masks, and gowns to the United
States so that they could hoard PPE for themselves while they
lied to the rest of the world about COVID-19's threats and
dangers.
China not only covered up an emerging pandemic, they also
spread the pandemic and made sure that the rest of the world
was not prepared to thwart the virus. Still to this day, this
House majority calls China's role in this pandemic a
distraction. The majority has held zero hearings on China's
role. We've had celebrities testify before our committee, but
yet, we can't get the Chinese Ambassador, as we've called for
multiple times, to come and testify before this committee. We
cannot fully understand this pandemic and the impact it's had
on the American people without understanding the role of the
Chinese Communist Party and the Chinese Government in this
coverup.
But let's start with where America was prior to COVID.
Prior to COVID-19, the economy added jobs every single month
since the election of President Trump. Prior to COVID-19, since
the President's election, the economy has added more than 7
million jobs. This is more than the entire population of the
state of Massachusetts in 2018. This is 5.1 million more jobs
than the Congressional Budget Office projected in its final
forecast before the 2016 election.
In 2019, real median household income increased by more
than $4,000 per household, reaching an all-time high of $68,700
of household income. This represents a 6.8 percent one-year
increase which is the largest one-year increase in median
income on record. As income grew by $4,379 per family in 2019,
this represents more than the entire median income gains during
the whole eight years of the previous administration by more
than $1,300 per family.
Poverty also hit a record low in 2019. The official poverty
rate fell to an all-time record low of 10.5 percent, and more
than 4 million people were lifted out of the poverty between
2018 and 2019 for a 1.3 percentage point decrease. This was the
largest reduction in poverty in more than 50 years. Minority
groups led the way in the alleviation of poverty. Compared to
the overall poverty rate reduction of 1.3 percent, Black
poverty fell by 2 percentage points, Hispanic poverty felt by
1.8 percentage points, and Asian poverty fell by 2.8 percentage
points. The poverty rate fell to an all-time record low for
every race and ethnic group in 2019. The Black poverty rate
fell below 20 percent for the first time in history. Between
the time President Trump took office and February 2020, African
American employment increased by 1.3 million jobs.
Then the virus hit our shores, and President Trump listened
to the experts. In fact, President Trump did take and continues
to take decisive action, carrying out a plan that is saving
American lives, carrying out a plan that is getting us on the
verge of multiple, not one but multiple vaccines for COVID-19.
That is a successful plan.
Now, if you want to start with the first decisive action,
as we finally found out, despite China's lies, what was coming
in from China, not just to America but all around the world,
the first thing President Trump did is made a critical,
decisive decision: he banned flights from China. There were
critics--we know who many of them are--using terms like
xenophobia and other things, but yet President Trump was
steadfast because he listened to his scientists. In fact, Dr.
Fauci testified from that very chair you are sitting in,
Chairman Powell, just a few weeks ago before this committee
that President Trump's decision on that and so many other
decisions along the way carrying out his plan was the right
decision and that President Trump's plan saved American lives.
Of course, the President made other decisions. He banned
travel from Europe once we realized that, while flights were
not allowed in from China, people from other European countries
had already been seeded this disease from China, and then they
were coming into the United States, so the President made
another tough decision, but the right decision, according to
all the scientists: he banned flights from Europe.
Then the President instituted the 15 days to stop the
spread plan which, again, Dr. Fauci from that chair just a few
weeks ago, testified under oath that that was not only the
right decision, but that decision saved American lives as did
the subsequent decision the President made to extend for
another 30 days and so many other decisions that we've seen
this President make.
We put the strongest economy in American history on a self-
induced coma. The pain was real: 40 percent of the job losses
occurred among people making less than $40,000 a year. In my
home state of Louisiana, almost 45 percent of the accommodation
and food service work force had lost their jobs, an industry
dominated by low-income workers.
Under President Trump's leadership, Congress responded in a
bipartisan way. We passed the CARES Act. We came together to
help those small businesses, to help those families who were
struggling, to help those hospitals who were struggling, and,
yes, also to help those states who were struggling. It put your
team to work, Chairman Powell, working on carrying out this
recovery plan.
While the Main Street lending facility program has perhaps
taken a slightly different path than originally anticipated,
the Fed provided a needed backstop and injected much needed
liquidity at a critical moment. The United States had the
smallest economic contraction of any major Western economy in
the first half of this year during this pandemic, and now
America has begun this next great American recovery. Total
nonfarm payroll employment rose by 1.4 million jobs in August.
With the record-breaking job gains in May and in June and in
July and now in August, this economy has added more than 10 and
a half million new jobs just in the last four months. We can
talk about those numbers. We can also talk about how much more
we need to go, but a plan that has created over 10 million jobs
to get that economy back going is the right direction we need
to be heading. The unemployment rate ticked down by 1.8
percentage points to 8.4 in August, beating market
expectations. African-American employment has increased by 1.3
million jobs from the record that we saw.
So, how do we keep this great American economic recovery on
track? I first want to emphasize a point that Chairman Powell
made in your testimony yesterday, quote: Our economy will
recover fully from this difficult period.
You talked about that yesterday. I'm sure we're going to
talk about that more today. The Chairman also testified
yesterday that, quote, ``the path forward will depend on
keeping the virus under control and on policy actions taken at
all government levels.''
Now, one of those areas in terms of keeping the virus under
control, because, clearly, this has been a critical component
of the President's plan, is to get a vaccine. As you know,
Chairman Powell, and as members of this committee know, we have
three different groups of very well-respected, internationally
respected drug companies that are in final testing, in Phase 3
of FDA testing, for a vaccine. We don't know when this will
complete. We don't know if all three, one, two, maybe all three
will get approved by the FDA. But never in our history have we
seen one, let alone three, vaccines on the brink of actually
being approved by the FDA in this quick of a period of time.
And why is it? It is not by accident. It is because of the
President's plan. It is called Operation Warp Speed that's
brought us to this point. Some of this is money that we voted
on in a bipartisan way for the CARES Act, that we allowed the
FDA, CDC, and other agencies to have increased ability to go
out and encourage the development of a vaccine, no corners
being cut. Critical, critical point. No corners have been cut.
We've heard from many of the top scientists working on this
just how detailed this is, just how many people, thousands,
tens of thousands of Americans who have signed up.
I want to congratulate and thank, by the way, Mr. Chairman,
the 250,000-plus Americans who signed up to participate in
these trials. It's unprecedented that Americans from all walks
of life have stood up and said, ``I'm willing to be a part of
these trials so that we can get a vaccine that will save
American lives.''
I am concerned, Mr. Chairman, that there's some people that
are trying to undermine the public confidence in this process.
You started to see it just last week, some politicians, for
their own personal benefit, trying to put doubt in the heads of
people whether or not this process is going to yield a safe and
effective drug. There ought to be no doubt. There ought to be
nobody trying to use politics to interfere with this process.
The highest integrity, not just in America but in the world, is
taking place at the FDA. The FDA is the gold standard for the
world at testing and approving drugs, and no one has suggested
that that process has been compromised. I challenge anybody to
name one company on this list that would cut corners or speed
up the process that involves putting a drug in your body just
because they're trying to help some candidate for political
office. That's a ridiculous and dangerous notion. That kind of
attempt to reduce public confidence would cost American lives.
So, let's follow the science. Let's let the FDA run its
course. If a drug or two or three or more get approved -
vaccines, therapies - we ought to celebrate that. We ought to
applaud that and encourage people to listen to their doctor.
Ultimately, that's a discussion between them and their doctor
about whether or not they should take this, but let that
process move forward without further corruption.
And, again, I applaud the President for the work he's done
to put all of these plans in place, to lay out through CDC how
schools can safely reopen. We need to encourage all elements of
our economy to safely reopen. It can be done. Some are choosing
to do it, and some at the local level are choosing not to do
it. We've seen and we've heard testimony about the devastating
impact on children, for example, when a local school system
makes the decision not to safely reopen for in-school learning.
It can be done safely. The guidelines are there all around.
Some are choosing to do it, and some aren't, but there's
consequences to those children. There're consequences when
economies are shut down, and we're seeing death rates,
unfortunately, go up in other areas because people are losing
their jobs, losing their way of life, companies that are
collapsing.
We've got a bill, Mr. Chairman. I brought this to the
majority leader's attention. Congressman Chabot from Ohio filed
a bill to take the remaining PPP money. We've got $138 billion
remaining in the Paycheck Protection Program sitting idle in a
bank account because the program expired. It was a highly
successful program. It wasn't a Republican program or a
Democrat program. We all voted on it, and it had unbelievable
success, over 50 million jobs that had been created, and yet
there are many of those businesses that are still struggling
today, that want to get back up and running, that could use a
second lifeline, and we have the money to do it. What
Congressman Chabot's bill does is frees up that $138 billion so
that those small businesses who are actually having a decline
in their sales--some are increased in their sales, but some are
declined, let those businesses that are still struggling go a
second round with that money that's sitting idle in a bank
account. I would hope that the majority would bring that bill
to the floor. That's tremendous bipartisan support. An article
in The Hill today talks about a number of Democrats who are
very interested in that bill, and yet we're not allowed to get
a hearing on that bill on the House floor. We could come
together and get that done. I know there are bigger issues that
are being negotiated, but that negotiation has been going on
for weeks. Let's take a program we already agree on and at
least give a lifeline to those small businesses who are
struggling while we work to get this great economic recovery
back on track.
I look forward to your testimony, Mr. Chairman. And, with
that, I yield back the balance of my time.
Chairman Clyburn. I thank the ranking member for his
statement, and I just wish to say, as we turn to our witness,
Mr. Ranking Member, I've only heard one politician cast any
doubt on the scientific research being done, as well as a
timeline for when this vaccine may come online, only one that
I've heard that from.
I would like now to introduce our witness. Today, the
select committee is pleased to welcome the Honorable Jerome H.
Powell, Chair of the Board of Governors of Federal Reserve
System.
Thank you, Chairman Powell, for being here today.
Please stand so I may swear you in. Please raise your right
hand. Do you swear or affirm that the testimony you're about to
give is the truth, the whole truth, and nothing but the truth,
so help you God?
Mr. Powell. I do.
Chairman Clyburn. You may be seated.
Let the record show that the witness answered in the
affirmative.
Without objection, your written statement will be made part
of the record.
Chairman Powell, you are recognized for your opening
statement.
STATEMENT OF THE HONORABLE JEROME H. POWELL, CHAIR, BOARD OF
GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. Powell. Thank you. Chairman Clyburn, Ranking Member
Scalise, and other members of the select subcommittee, thank
you for the opportunity to update you on our ongoing measures
to address the hardship brought by the pandemic.
The Federal Reserve, along with others across government,
is working to alleviate the economic fallout. We remain
committed to using our tools to do what we can for as long as
it takes to ensure that the recovery will be as strong as
possible and to limit lasting damage to the economy.
Economic activity has picked up from its depressed second
quarter level when much of the economy was shut down to stem
the spread of the virus. Many economic indicators show marked
improvement. Household spending looks to have recovered about
three-quarters of its earlier decline, likely owing in part to
Federal stimulus payments and expanded unemployment benefits.
The housing sector has rebounded, and business fixed investment
shows signs of improvement.
In the labor market, roughly half of the 22 million payroll
jobs that were lost in March and April have been regained as
people return to work. Both employment and overall economic
activity, however, remain well below their pre-pandemic levels,
and the path ahead continues to be highly uncertain.
The downturn has not fallen equally on all Americans. Those
least able to bear the burden have been the most affected. The
rising joblessness has been especially severe for lower wage
workers, for women, and for African Americans and Hispanics.
This reversal of economic fortune has upended many lives and
created great uncertainty about the future.
A full recovery is likely to come only when people are
confident that it is safe to reengage in a broad range of
activities. The path forward will depend on keeping the virus
under control and on policy actions taken at all levels of
government. Since mid-March, we have taken forceful action,
implementing a policy of near zero rates, increasing asset
holdings, and standing up 13 emergency lending facilities. We
took these measures to support broader financial conditions and
more directly to support the flow of credit to households,
businesses of all sizes, and state and local governments. Our
actions, taken together, have helped unlock more than a
trillion dollars of funding which, in turn, has helped keep
organizations from shuttering, putting them in a better
position to keep workers on and to hire them back as the
economy continues to recover.
The Main Street Lending Program has been of significant
interest to this select subcommittee and to the public. Many of
the businesses affected by the pandemic are smaller firms that
rely on banks for loans rather than the public credit markets.
Main Street is designed to facilitate the flow of credit to
small-and medium-sized businesses. In establishing the
facility, we conducted extensive outreach, soliciting public
comment and holding indepth discussions with lenders and
borrowers of all sizes.
In response to feedback, we've continued to make
adjustments to Main Street to provide greater support to small-
and medium-sized businesses and to nonprofit organizations,
such as educational institutions, hospitals, and Social Service
organizations. Nearly 600 banks, representing well more than
half of the assets in the banking system, have either completed
registration are in the process of doing so. About 230 loans
totaling roughly $2 billion are either funded or in the
pipeline.
Main Street is intended for businesses that were on a sound
footing pre-pandemic and that have good, longer term prospects
but have encountered temporary cash-flow problems due to the
pandemic and are not able to get credit on reasonable terms as
a result. Main Street loans may not be the right solution for
some businesses, in part because the CARES Act states clearly
that these loans cannot be forgiven. Our credit facilities have
improved lending conditions broadly, including for potential
Main Street borrowers. And the evidence suggests that most
credit worthy small-and medium-sized businesses can currently
get loans from private sector financial institutions.
Many of our programs rely on emergency lending powers that
require the support of the Treasury Department and are
available only in unusual circumstances. By serving as a
backstop to key credit markets, our programs have significantly
increased the extension of credit from private lenders.
However, the facilities are only that, a backstop. They are
designed to support the functioning of private markets, not to
replace them. Moreover, these are lending, not spending powers.
Many borrowers will benefit from these programs, as will the
overall economy, but for others, a loan that could be difficult
to repay might not be the answer. In these cases, direct fiscal
support may be needed.
Our economy will recover fully from this difficult period.
We remain committed to using our full range of tools to support
the economy for as long as needed. Thank you.
Chairman Clyburn. Thank you. Thank you very much, Chairman
Powell.
Because we are running behind on time, Mr. Ranking Member,
I'd like to go out of order and recognize one of our members
for his questions so that he may go into another meeting.
Mr. Scalise. Yes. We have no objection to that, Mr.
Chairman.
Chairman Clyburn. I now recognize Mr. Foster for five
minutes.
Mr. Foster. Well, thank you, Mr. Chair, and hello, Chairman
Powell. I would like to thank the chairman and my colleagues
for letting me ask my questions early here as I have to leave
to chair a hearing on the subcommittee on investigations and
oversight in the Science Committee into political interference
into epidemiological statistics at the CDC.
So, you know, the--and I'd like to begin, actually, by
talking about the importance of regulatory independence. The
coronavirus response provides us with two crystal clear
examples of both the benefits of regulatory independence and
the dangers of political interference. The independence of the
Federal Reserve seems largely to have been respected during
this crisis. As a result, you succeeded in the major part of
your charge: to stabilize the financial system against external
shocks.
Unfortunately, we've also seen a tragic example of the
dangers of political interference into jobs best left to
experts as tragically demonstrated by the dangerous and
incompetent political interference by the Trump Administration
into the jobs of professional scientific staff at the CDC, NIH,
FDA, and other public health agencies. Tens of thousands of
Americans have died as a result, 4 percent of the world's
population and 25 percent of the deaths, and no amount of
attempts to rewrite history will change that brutal fact. Many
more thousands are at risk if the public loses confidence in
the safety and effectiveness of an approved vaccine due to
persistent manipulation or attempts to manipulate the
scientific judgment of career professionals.
So, Chairman Powell, you should count your lucky stars that
you have been able to do your job largely behind the firewall
of independence that Congress has crafted for you and that you
can depend on the integrity of the statistics that you need to
do your job.
Now, in your testimony, you mentioned doing what you can to
help our economy, an acknowledgment of the limits of the Fed's
ability to help different segments of the economy survive. And
the intervention to minimize pain on Wall Street has been
largely successful thanks, in part, to the Federal Reserve's
unprecedented intervention in the corporate bond market. These
interventions have dramatically lowered the cost of raising
capital for large corporations, and these markets are now
functioning adequately, although perhaps distorted, due to
significantly underpricing risk compared to what would have
happened without Fed intervention.
During the previous financial crisis, we saw risk spreads
over treasuries for most corporate bonds, you know, went out to
several hundred basis points and persisted for about a year
while, in this crisis, the yield spike was much smaller and
disappeared promptly in response to the Fed's intervention.
At the other end of the market, the PPP program has been
significantly successful in providing a path for survival for
many of the smallest businesses largely because of the prospect
of loan forgiveness, and there is bipartisan support for
extending that program. But there has been difficulty in
crafting an appropriate program for medium-sized businesses.
You know, the Fed does have a facility for small-and medium-
sized businesses, the so-called Main Street lending facility,
but uptake has been rather small. In large part, this is
because they're loan programs, and many businesses do not need
loans. They need money to survive, but handing out taxpayer
money carries many moral hazards.
So, like--so, my open-ended question here is what are the
possible extensions and modifications to that program that you
may have considered but may have discarded that might have made
it more effective in delivering capital to midsize businesses
on which so many jobs depend?
Mr. Powell. Thank you, Mr. Foster. So, I'll first say on
the corporate credit facilities, the larger companies that have
access to the bond market were--that market was closed down in
February and March, and these are very large companies. Their
businesses were severely affected by the pandemic, and our
actions were in no way an attempt to relieve pain on Wall
Street. They were solely focused on opening up those markets so
that those companies could finance themselves and keep their
workers working, and I think we've had good success in that.
The two facilities we erected together really have worked to
allow companies to finance themselves, not so much to borrow
from us but our backstop. So, I think those are--we're pleased
at the success we've had so far with that.
You asked about Main Street. Main Street is a--this is
medium-sized companies and smaller companies that sort of fall
between the PPP program and the corporate credit facilities,
and that's a world where lending takes place through banks.
Every bank credit agreement is carefully negotiated and unique
in its own way, so there isn't the standardization that allows
you to intervene quickly in the bond market. So, it's very,
very difficult, and the only way for the Fed to reach those
companies was through the banking system. So, we had to create
standardized products that would meet the needs of as broad as
possible a range of companies and do that in a way that was
consistent with section 13-3 and the CARES Act.
As you've seen, we've had repeated waves of efforts to
broaden the appeal of that program. We've done most of the
things that we can think of, or, basically, all of the things
we can think of that are clear gains, we've done. We're looking
to do more, but the uptake is modest. You're correct in saying
that, but I would say, more broadly, credit is pretty broadly
available in the space of small-and medium-sized companies.
Banks are lending. If the economy performs worse than we
expect, then Main Street will be there to take on a heavier
load. But I would say the things that we've done have been--
have really been to widen the appeal of that program and its
effectiveness. And I don't--nothing major that we're looking at
now--there is nothing major that we see now that we--that would
be consistent with opening it further.
Mr. Foster. Well, yes. I'm afraid I'm over time here, but I
urge you to remain creative and to see what you can do to make
that more effective.
I yield back.
Chairman Clyburn. Thank you very much, Mr. Foster.
The chair now recognizes the ranking member for five
minutes.
Mr. Scalise. Thank you, Mr. Chairman.
I do want to give an update. Just--literally, just a few
minutes ago--I know I showed this chart in my opening, but
literally a few minutes ago, there was an announcement that a
fourth company has just been entered into Phase 3 of FDA
testing, and that's Johnson & Johnson. It was a drug that was
showing tremendous progress during Phase 2, but just less than
an hour ago, we got the word that the FDA has now moved Johnson
& Johnson into Phase 3 of testing on a vaccine that they're
seeing tremendous progress in. This is four different major,
internationally respected drug companies in America that are on
the verge of a vaccine for COVID-19 that can be approved by the
FDA. Again, I applaud President Trump for his leadership at
putting this plan in place through Operation Warp Speed to
remove red tape so the scientists can actually focus on saving
lives, and this is what it's yielding. Let's continue to
embrace that revolutionary pace of scientific research.
Chairman Powell, I want to ask you about where we are in
the economy. Clearly, as I talked before, we saw historic job
creation, job growth, personal income levels increasing for
people in every demographic group at every income level prior
to COVID. Now we're working through this pandemic. As the whole
world is dealing with it, we're trying to get through this as
well. But between April and August, how many percentage points
have we seen unemployment fall in America as we've started to
reopen our economy?
Mr. Powell. You know, I think the official number is
something like from 14 and change to 8.4 percent today. But you
said it in your remarks. Two things are true. One, we've really
made substantial progress, and that's great to see and faster
than we expected, frankly, but there's plenty left to do.
Mr. Scalise. Clearly. And when you compare, let's say, to
the 2008 great recession, I've seen numbers that it took over
10 years for our economy to recover from that. Is that about
what you've seen?
Mr. Powell. Yes. Of course, that was different. This was a
situation where we shut the economy down, so we had outsized
loss of employment and loss of economic activity, so you would
expect that the first new quarter would be good. As I say, this
is--and this has been a good start to a recovery.
Mr. Scalise. Right. And, of course, the economy was shut
down in part to make sure our hospitals weren't overrun but
also to slow the death rate, as we learned about this virus
after China lied to the world, which we still ought to have a
hearing on before this committee--of all things we should be
having a hearing on, it's China's role in creating this. But
because of the President's action, if you look throughout the
world, this is a global pandemic. It's affecting every country.
We mourn every loss of life here in America. We've crossed the
200,000 death number. We mourn all of those deaths. You look
around the world. Many countries actually are experiencing a
higher death rate than the United States, and so that's where
we need to keep doing the things we're doing to bring that
number down as we are. You see these other countries that are
above us. They will benefit, by the way, from the work we're
doing to develop a vaccine. As we work and we put money in
place to develop a vaccine and the President's Operation Warp
Speed is getting us to the brink of that, that work will also
benefit all of these other countries around the world. And
notice, by the way, you don't see on this list China. You don't
see on this list Russia because they don't even release their
numbers, so the world doesn't really know the full impact. But
as you can see, we all want to get to that place where we've
conquered this disease. Fortunately, because of science and the
leadership of the President, we are on the brink of a vaccine
to actually get around the hump, and that helps us to safely
reopen the economy even more.
I want to ask you about safely reopening schools because
first, I'll ask in a--I mentioned this in my opening. We've
done a lot to help small businesses. The Paycheck Protection
Program has been highly successful. If we were, for example,
able to go a second round for those businesses that are still
struggling, let's say 25 percent or more loss compared to where
they were before where they could actually go for a second
round of Paycheck Protection Program relief, would that be
helpful to the economy, in your view?
Mr. Powell. Yes. I'd say--I would say it this way. The
returns to making people feel safe enough to engage in ever
more activities, from an economic standpoint, those returns
will be very high.
Mr. Scalise. And safely reopening schools. We've seen CDC
protocols, American Academy of Pediatrics. There's a way to do
it. Some are doing it; some aren't. Is it a benefit to the
children, and is it a benefit also to the economy to safely
reopen schools?
Mr. Powell. Yes, with emphasis on safely. People have to
feel confident, and we have to, you know, observe those----
Mr. Scalise. Right. People can wear masks. You can put in
plexiglass. Students can be 10 feet from the nearest teacher.
There are all of those standards in place. A lot of that's laid
out by the President's plan. If anybody cares to read it, it's
all online. You can go get it right now. So, hopefully we will
continue to encourage people to follow those guidelines and
safely reopen, continue to encourage the great work this
President's done to get us to the brink of a vaccine so that we
can finally safely reopen the economy and get this country back
on track. Thanks for the work you're doing. I'm sure we'll talk
more about it.
Mr. Chairman, I yield back.
Chairman Clyburn. Thank you very much, Mr. Ranking Member.
The chair now recognizes himself for five minutes of questions.
Chairman Powell, I notice in your opening statement here,
you mentioned the fact that these small businesses, Main Street
loans are--have to be repaid under the law. Now, how did the
minimum loan get to be $250,000? I don't think that's in the
law.
Mr. Powell. No. So, we designed this--this program for
medium-sized companies, basically, and we had a--if you may
recall, we had a--I think we had it $2 million originally, and
then we moved it to $1 million minimum, and then we moved that
to $250,000. So, actually, the demand in the facility, there
really hasn't been any under a million dollars. It would be a
different facility, truthfully, if we were going to try to lend
money in very small chunks like that. It would--you know, doing
the due diligence on hundreds of thousands of very small loans
would be a really different program. And I would tell you that
it's more--that part of the market is better suited to the
Paycheck Protection Program. But it would be--the current
facility would not work for much smaller loans. We'd have to
start a new facility that had a lot less protections for the
taxpayer and that kind of thing.
Chairman Clyburn. So, with 99.7 percent of the money still
sitting there, you don't think you can come up with a program
that would use the money, $1.1 trillion, to try to keep people
employed, try to keep businesses open? It's still sitting
there.
Mr. Powell. Well, the purpose of these facilities was to
reopen the private capital markets. About a trillion dollars of
lending has taken place just between the corporate credit
facilities and the municipal facility. All of that was closed
down in--effectively in March and April. We put these
facilities in place, and now there are record amounts of
borrowing happening in the corporate facilities--the corporate
facility and in that space, rather, and in the muni--muni
space. We set up a facility, and then the private market
started working again. With Main Street, it's not so simple
because you don't have those kind of externalities. We've
worked hard to reach borrowers. Again, as I said in my opening
statement, we're looking for borrowers who were in good shape
before the crisis and had good longer term prospects, but
because of the pandemic, they've lost--had a real effect, and
now they can't get loans elsewhere. So, that's a relatively
modest group in size, and we've done everything we can to reach
out to them. And, you know, we are--we do--are experiencing a
steady flow of borrowers, and we expect that to continue and to
pick up if the economy weakens.
Chairman Clyburn. Well, Mr. Chairman, I--in view of this
issue, I'm going to call your attention to the report that we
just published this morning. We find that, in the dual mandate
that the Fed has, one of them is maximum employment. Yet the
Fed bought corporate bonds issued by companies, we found this
in our report, that laid off more than 1 million workers since
March. That doesn't sound like maximum employment to me. And of
these companies, 383 paid dividends to their shareholders
during the pandemic. Laid off over a million people, paid
dividends to 383--I mean, 383 companies paid dividends while
laying off people. That doesn't sound like maximum employment.
Mr. Powell. It doesn't sound good, but let me explain it a
little bit. So, the secondary market corporate credit facility,
what we did was we bought very, very small amounts of bonds
across 800 different issuers, and those are out--already
outstanding bonds. We're not making loans to those companies.
They're not--they're not getting a loan from us at all. We're
buying from another buyer. And the reason we bought from 800
was we didn't want to be deciding which company to buy from and
which not. So, that's what we did. We didn't ask these
companies whether we could buy their bonds or not. I think if
we'd said we, you know, ``We want to buy your bonds because we
want to make you part of an index,'' they would probably have
said no, and, ``We want you to do--we want you to do certain
things.'' They would have opted out. We had no basis to ask
them to do anything. We didn't ask their permission. That was
the point of this. It wasn't to allocate credit. And these
are--these are tiny amounts in the grand scheme of things. None
of those companies sees themselves as having gotten a loan from
the Fed. Again, there are 800 of them, and we're buying very,
very--we're down to buying, I think, $20 million worth of bonds
now daily, and we're barely present in that market at all. So,
I think it's--you know, the real thing is the primary market
facility, which is where we were going to make loans to those
companies, we've made zero loans. And the reason is that when
we set the facility up, borrowers and lenders started lending
again because we were an effective backstop, so--and these were
big American companies that were under tremendous strain, and
they could have laid off hundreds of thousands of people and
didn't because of this facility. So, I would say it's been a
success.
Chairman Clyburn. Well, as I--my time has expired, but I
would like to say that 227 of these companies over the last
three years have been accused of illegal conduct, 227 of them.
With that, I yield five minutes to Mr. Jordan.
Mr. Jordan. Thank you, Mr. Chairman.
Chairman Powell, yesterday, you said our economy will
recover fully from this difficult period. Would it recover
faster if some states weren't still largely locked down?
Mr. Powell. You know, the decision about when to lock down
and how to open up is one that's given to others other than the
Fed, so I wouldn't have a view on that.
Mr. Jordan. But just simple terms. I mean, you think about
it. We've got California, New York, New Jersey, Pennsylvania,
Michigan still largely locked down. That's--that's, like, one-
fourth of our population. I'm--frankly, I'm amazed at the
American comeback, the recovery that's happening in spite of
the fact that you've got these states, some of our biggest
states in population, still largely locked down. I think it's a
simple question. If they were opening faster, would our economy
be recovering faster?
Mr. Powell. So, you know, the question is of opening --is
about reopening-- in a way that is sustainable.
Mr. Jordan. Yes.
Mr. Powell. And it's just not a matter of reopening. You've
got to do it in a way that's sustainable. If you look at some
of the European countries right now that were doing so well a
few months ago, now they've got a big outbreak. So, I think
it's a very difficult judgment, how fast to reopen given how
urban your population is because that--there seems to be a lot
of spread in urban areas. So, again, we have a lot of
responsibilities. You've given us a precious grant of
independence if we stay out of politics and stick to our
knitting. And I wouldn't prejudge state and local governments
in their decisions here.
Mr. Jordan. But are you somewhat amazed, as I am, that the
economic recovery is as strong as it is in spite of the fact
that these states are still largely locked down? I think that's
amazing when the unemployment numbers have come down like they
have in spite the fact that you've got five--these are, like, 5
of the top 10, 11 states in population in the country still
largely locked down.
Mr. Powell. Yes. I don't know that there--they may be
locked down in the sense people are working from home, but I'm
not sure their GDP is lower systematically. I'd have to look at
that. If you think about a place like New York, you know, a lot
of what's happening in New York is the financial markets, and
people are working from home. Their output, such as it is, will
be high even though they're still somewhat locked down.
Mr. Jordan. Was the economy pretty good prior to COVID?
Mr. Powell. I would say yes. A lot to like about a tight
labor market. A lot to like about 3 and a half percent
unemployment.
Mr. Jordan. It was great, wasn't it?
Mr. Powell. You know, there are always problems in an
economy, but this was as good an economy as we've seen in a
very long time.
Mr. Jordan. Wages were up?
Mr. Powell. Wages started moving up, particularly for
people at the low end of the wage spectrum, in the last couple
of years. As the--as unemployment got down and the labor market
got tight, you saw the benefits going. As I said, there's a lot
to like about a tight labor market.
Mr. Jordan. The poverty rate was down?
Mr. Powell. Yes.
Mr. Jordan. Economic--was the economy better than--better
for everyone in our population?
Mr. Powell. I would--I don't know about everyone, but I
would say that the benefits--and I said this recently in a set
of public remarks. The benefits began to be more widely shared.
As unemployment got lower and lower, what you see is businesses
are hiring people who haven't been successful in the labor
market and pulling them in, and they're getting training, so
there's a lot to like about that.
Mr. Jordan. The economy was good--it was better for African
Americans, Hispanic Americans. It was better for all Americans,
wasn't it, low-earning Americans, high-earning Americans? Wages
up, unemployment down. It was better for everyone, wasn't it?
Mr. Powell. In a lot of measures, yes.
Mr. Jordan. Unemployment was low prior to COVID?
Mr. Powell. Yes.
Mr. Jordan. Low--lowest in 50 years?
Mr. Powell. Lowest sustained period of--since the 1960's,
yes.
Mr. Jordan. Here is what--here is what Secretary Mnuchin
said just two weeks ago when he testified in front of this same
committee: I believe there's no question that the reason we
have unemployment high right now is that certain states are not
opening up.
Do you agree with Secretary Mnuchin's statement?
Mr. Powell. I cannot validate that, no. I'd have to go back
and look. I'm not sure that's right.
Mr. Jordan. You don't think the Secretary is right, that if
states would open up, unemployment numbers will come down?
Mr. Powell. This is a--you're asking me a data question,
which is, are--basically, does the unemployment rate correlate
with the level of lockdown in particular states, and I've
learned in my almost nine years at the Fed to talk to the
economists before I could answer that.
Mr. Jordan. But it would seem common sense, Chairman
Powell, that if your state is largely locked down and not
letting restaurants open and not letting things happen, not
letting people go back to work, saying some businesses are
essential, some aren't, it would seem just common sense if you
begin to open up, unemployment is also going to come down. I
think that's all the Secretary is saying. I'm just asking if
you agree with Treasury Secretary Mnuchin.
Mr. Powell. Yes, again, I'd want to look at the data. I
mean, there's common sense in what you're saying, but, again, I
think of New York, in particular, people are working from home,
but they're not unemployed. So, it wouldn't change things. I
mean--you could--look at it this way: You could reopen all the
restaurants in the United States right away, and you'd have
technically unemployment go down. Would that be a smart thing
to do? That would be a question for others.
Mr. Jordan. OK.
I yield back.
Thank you.
Chairman Clyburn. I suspect, Mr. Chairman, we would see a
flourish in the economy with undertakers and cemeteries.
With that, I'll yield five minutes to Ms. Waters.
Ms. Waters. Thank you very much, Mr. Chairman and Members,
of course. I came here today to continue discussion with Mr.
Powell or the Feds. And I'm always pleased to see them, and we
work well together. But, you know, Mr. Scalise always starts
out by talking about how great the President has been in
handling this pandemic, this COVID-19.
He's constantly using the time to talk about China and
China's responsibility in all of this. One of the things I'd
like to find out from Mr. Scalise--I don't want to do it
today--is whether or not he would advise the President and his
daughter to give up the trademarks that they have with China
and the business relationships they have with China in the
interest of punishing China.
Mr. Scalise. Will the gentlelady yield?
Ms. Waters. No, I will not yield.
Mr. Scalise. I'd be happy to talk about that.
Mr. Jordan. You asked him a question.
Ms. Waters. In addition to that, I would like to ask
Chairman Powell, did you hear that the CDC had basically issued
an advisory that said that the virus could be airborne for six
feet or more and infections, and then they took it back within
24 hours? Did you hear that?
Mr. Powell. I'm actually having a hard time hearing you,
but I don't think I did, no.
Ms. Waters. What I want to know is, did you hear about the
CDC having issued a new advisory that the virus was airborne
and it could infect those six feet away because of the
emissions, you know, from an infected person? Did you hear
about that?
Mr. Powell. Yes. Yes, I did. Sorry.
Ms. Waters. OK. You have said that this is a health problem
that we have, and while everybody is trying to dump on you
about the economy and what you're doing or not doing, did you
indicate ever in your speeches or in your talks that, to the
degree that we're able to handle the health problem, that
certainly would help us with strengthening our economy. Is that
true?
Mr. Powell. Pretty much every set of remarks I give I say
that the path of the economy's going to depend on our ability
to retain control, to get control of the virus and keep
control, and that we have the power to help that by following
the advice of the experts, by wearing masks and keeping
distances and that kind of thing. In fact, those things help us
reopen the economy faster.
Ms. Waters. Did you also hear recently that there are some
states, some of which were mentioned here this morning, where
the virus is spreading, it is not subsiding? Did you know that
there are some states that are in that situation?
Mr. Powell. Yes, ma'am.
Ms. Waters. And did you know that the President of the
United States of America did not begin even talking about or
letting the public know that we were confronted with the virus
until after maybe a couple of months that he knew? Did you hear
something like that?
Mr. Powell. I would have no comment on that, Madam Chair.
Ms. Waters. Thank you. Well, let me just say that, when we
have members who are talking about how good the President has
been, how, you know, the President has been a leader, and we
know that we can identify several things that the President has
or has not done that has caused extended problems with this
virus, I think that we should pay attention to the experts and
do everything that we can do to help the economy by getting a
handle on the infections and the virus that is taking place.
I am absolutely disturbed about the fact that someone is
pushing to talk about opening up our schools when we have
40,000 students that have been infected. So, having said all of
that, and an answer to Mr. Clyburn about the $250,000, it was
once $1 million. Because of me and my committee, working with
Ms. Velazquez, you agree to reduce it from $1 million to
$250,000.
Is that right?
Mr. Powell. We did reduce it to $250,000, yes, ma'am.
Ms. Waters. OK. And in a hearing just yesterday or so, when
you were asked about this, along with Mr. Mnuchin, Mr. Mnuchin
said, well, perhaps it could be reduced to $100,000 as the
criteria for small businesses being able to make loans in the
Main Street program.
Is that right?
Mr. Powell. Yes. The Secretary did say that.
Ms. Waters. And what you have said is that you are
basically involved in monetary policy, not fiscal policy, but
what has happened with COVID, you have kind of been involved in
ways that you would normally not be involved, and you'll take
another look at this, even though you tried to explain here
today about the Main Street program and how it works now.
I have to tell you, while I agree with you on a lot of
things, I'm really concerned about Main Street also. I'm
concerned that, when we think about Main Street, we really
don't think about the size businesses that you have
incorporated in Main Street. Some of us see those as big
businesses, to tell you the truth.
Would you tell us what that amount is that covers the Main
Street program?
Mr. Powell. It's less than 15,000 employees or 5 billion in
revenue. That's the top end. We don't actually set a bottom
end, I don't believe, in terms of size, but it was designed to
go between the PPP facility, broadly, between the PPP facility
and the corporate credit facilities for the big companies.
Ms. Waters. My time is expired, but I'd certainly like to
continue to ask you to see what you can do to help us with our
small businesses and the amount of money that is left that you
have.
Thank you.
I yield back.
Chairman Clyburn. The chair now recognizes for five
minutes, Mr. Luetkemeyer.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
Chairman Powell, welcome. Always good to see you.
Last week, we had a hearing with regards to some of the
state and local needs. And we had a gentleman who--Mr. Holtz-
Eakin, who you probably know, who was former CBO director. We
asked him the question about how many dollars he thought we
needed to have in our budget to make whole the state and local
folks. He said that revenues are coming in on the state and
local side at record revenues in 16 different states over last
year with regards to sales tax revenue, but not coming in too
well, obviously, with income tax revenue. And to make them
whole, you would take about 200 to $250 billion.
So, my question to you is, does that seem reasonable? Is
that in the ballpark of what you would anticipate to make the
state and local folks whole from the losses that we've incurred
over the last several months due to COVID?
Mr. Powell. So, I asked for views on that. I just happened
to a couple of days ago, and there's actually a wide range of
estimates. But that's certainly within the range of estimates.
You can get to a higher estimate. Of course, expenses have gone
up too.
Mr. Luetkemeyer. But my point is, if we're in the range of
$200 billion to $250 billion and we know that from the
leadership on the other side, they're looking at trying to do a
trillion to $2 trillion of additional money for state and
locals, that doesn't seem to be matching up with where we need
to go, and seems to be the leverage point that the other side
wants to use to try and hold up changes to the PPP program and
other things that are necessary to keep our economy going and
address the needs of those who are left out of this.
But I mean, that's a fair statement?
Mr. Powell. Yes. I have a strong desire to not play a role
in your discussions over how much.
Mr. Luetkemeyer. You're a smart man, Mr. Powell.
Thank you very much.
You know, one of the things that's been talked about here
is your different facilities and congratulate you on your quick
response. I know the Fed usually--and don't take this the wrong
way, but in my opinion of them, it's like trying to turn a ship
around in the middle of the ocean. It takes a long time to get
anywhere with the Fed. But you guys were very responsible, like
a speed boat in the middle of a lake with regards to how you
set these facilities up and did a fantastic job. Thank you so
much.
But it seems to me like there's a misunderstanding of how
these--how the economy works with regards to helping out bigger
businesses. I'll give you, for instance. I've got Boeing right
in my district and another big plant just outside my district.
I know it's one of--in this report, this is one of the
companies that's mentioned here, but if you don't help a
company out like that to make them stay whole, stay in
business, you're going to lose all the jobs that are there, not
just the ones that they laid off. And you'll also lose the
small businesses that make parts for all these planes.
I'll give you an example. I got one plane that is made in
my district; 1,800 small businesses provide parts for that. And
all the employees of those small businesses would be affected.
This is big business, and once it gets back on its feet, it
will probably hire back a lot of those folks just like a
restaurant that lays off two people and once it gets back going
full speed again will hire those two people back.
Is that a fair statement of how this situation works?
Mr. Powell. Very much so. Same with the auto companies. A
lot of big American companies have thousands of suppliers, as
you know.
Mr. Luetkemeyer. So, it's important that we salvage these
big businesses to make sure that we keep those services and
things going, as well as provide--maintain those jobs that we
can be retained down the road, pick up the rest, and also help
the small businesses that help to feed into these businesses.
Is that----
Mr. Powell. Yes.
Mr. Luetkemeyer. With regards to regulatory stuff. You
know, I can't let a hearing go by without talking about CECL,
so I'm sure you expected that. You've probably got something in
your notes. If not, you've got it off the top of your head. But
to me this is, you know, CECL is some of the regulatory stuff,
as well as forbearance, that has got to be playing in, I think,
in your role here in this pandemic to make sure that we
continue to address the credit needs of the folks across the
board, and make sure that the capital and reserves are not
mismanaged and mishandled.
Your agency, the Federal Reserve, comptrollers, FDIC, were
all part of an interim rule that was made with regards to CECL,
and I think we need to continue to push this down the road, and
we proved that it's pro-cyclical. Treasury came out with a
report last week, which is kind of ambivalent about all of
this, which is unfortunate, but do you see that we need to
continue to waive and postpone the implementation of CECL till
this pandemic has passed so we can see what's going on?
Mr. Powell. I think what we've done is pretty effective. If
we came to that view, we wouldn't hesitate to act, but I guess
we gave companies up to five years to insulate themselves from
the capital effects of it.
Mr. Luetkemeyer. So, the interim rule is two-year delay,
three-year implements. I mean, you guys see that there's a
problem there with regards to forbearance. Again, to me, we
don't want a repeat of 1908 and 1909 when the regulars came in
and were forcing because of their rules and regulations to
force banks to foreclose and push out some of our customers.
So, to me, I realize that there's some rules that'll be put in
place, but if you have a law in place that both the banks and
the regulars can point to that as guidance to be able to help
them through this period to make sure that forbearance is given
to make sure we don't close down industries and businesses.
Would you agree with that?
Mr. Powell. Yes. I think we came in with a strong banking
system and that gives us the ability to make targeted temporary
adjustments to regulation. We've done plenty of that, and I
think that's just a byproduct of all the work everyone did in
strengthening the system over the last----
Mr. Luetkemeyer. I had a long discussion the other day with
former Chairman William Isaac, and he made the comment that,
back in the 1970's, he was part of a group that actually went
to try and help the REITs survive that period. And there was a
five-year forbearance period that was granted to the REITs to
try and salvage them. It would seem to be a good way to address
our needs today to make sure that we don't push businesses out
of being able to do business.
Agree?
Mr. Powell. Thank you.
Mr. Luetkemeyer. Thank you.
Chairman Clyburn. The gentleman's time has expired.
The chair now recognizes Ms. Velazquez for five minutes.
Ms. Velazquez. Thank you, Mr. Chairman, and thank you,
Chairman Powell.
The Main Street Lending Program as the Fed role would
ensure credit falls to small and midsize businesses with the
purchase of up to $600 billion in loans. The program did not
make any loans until July. Why did it take the Fed four months
to set up the Main Street Lending Program when it was able to
set up credit facility for big businesses in just a few weeks?
Mr. Powell. Main Street is many, many, many times more
complicated to set up because, in the case of the companies
that have market access, there's quite a bit of standardization
in the bond market, and it was straightforward to set up that
facility, and we did so very, very quickly. The difference is
that Main Street deals with medium-sized companies who get
their funding in the banking system and every bank credit
agreement for every company is basically individually
negotiated. There's nowhere near the degree of standardization.
So, it was a much more complicated problem to solve, and, you
know, it took us a lot of outreach, and we took in public
comments. It was quite a bit of work to get to where we are.
Ms. Velazquez. OK. I hear you. You said yesterday the
program as set up tends to help larger sized businesses proven
by nearly one-third of loans being over $10 million.
Can you understand why many of us believe the Fed is
failing Main Street?
Mr. Powell. So, the--if I heard you correctly, most of the
banks that are active in lending are smaller banks, and the
loans are fairly small. I don't know what the average loan is,
but there's lots of business between $1 million and $10
million, which is not a big loan for a company that has the
kind of employees that one of these companies would have.
Ms. Velazquez. So, Congress already authorized a specific
lending facility to help small businesses in the CARES Act. The
Fed chose instead to set up the Main Street Lending Program.
Does the Fed have sufficient legal authority to provide
liquidity to small businesses who still need credit assistance
to followup on the points raised by Chairwoman Waters?
Mr. Powell. I think there was a particular Main Street
facility that was outlined in the CARES Act, but that was
expressly not binding on us. It said: Nothing in this facility
shall be seen to dictate to the Fed and the Treasury in
designing your own Main Street facility. So, we designed the
one that we have, which is designed to be as broadly applicable
as we could possibly make it.
Ms. Velazquez. So, the CARES Act told you to set up a
facility for truly small businesses that needed the assistance,
but you decided to create your own facility despite having the
authority, which is the issues that we're raising here.
So, last week, the Fed updated its guidance telling
participants that loans made in compliance with Main Street
program requirements won't be faulted by examiners. Why was
this change made, and how will it help encourage greater
participation in the program?
Mr. Powell. We want to work with our banks to make sure
that they understand that we won't run in and criticize these
loans. So, Main Street is supposed to be for loans that
wouldn't otherwise be made. In other words, if the loan was
already going to get made, then we didn't really need Main
Street for that. So, they're riskier to some degree, and
there's more risk in them, and we want to encourage the banks
by telling them that we understand that and that we will not
run in and criticize these things unnecessarily if you make a
loan that is consistent with Main Street.
Ms. Velazquez. So, Mr. Chairman, will you commit today to
taking a hard look at how to fix the program and even set up a
new facility from scratch, as you mentioned yesterday, to help
small firms on Main Street as we intended, as Congress
intended?
Mr. Powell. I would say this: it would be very hard to
create a facility that reaches very small businesses. The
reason is this--and that's why I think you were wise in the
CARES Act to create the PPP for smaller companies. To extend
credit to hundreds of thousands of very small businesses, these
are largely personal loans, you know. Business founders are
borrowing on their credit cards or their bank line with a
personal guarantee.
Ms. Velazquez. I hear you, but, Mr. Chairman, you stated
yesterday--or I don't recall when--that the coronavirus is a
great increaser of inequality, yet you decided not to collect
voluntary demographic data on borrowers in the Main Street
program.
Would you commit to including a voluntary demographic
questionnaire with loan applications going forward? How do we
know that the smaller businesses are being helped by the Fed?
Mr. Powell. We did not collect that data, and we don't have
any plans to do so. It's not a requirement in the law. We're
really implementing the law that you passed.
Ms. Velazquez. I yield.
Chairman Clyburn. The time has expired.
The chair now recognizes Mrs. Walorski for five minutes.
Mrs. Walorski. Thank you, Mr. Chair.
Thank you, Chairman Powell. I appreciate you being here.
The part of northern Indiana that I represent is home to
major manufacturers of RVs, boats, and cargo trailers. In fact,
85 percent of the RVs you see on the road come from my area.
Our community's also known among--also the hardest hit during
an economic downturn. In fact, Elkhart County in my district
had the Nation's highest unemployment rate during the great
recession. However, the coronavirus has turned that on its
head. Suddenly RVs and boats are in hot demand, so the local
economy in my area has been doing incredible, all things
considered, but I've still had plenty of small business and
nonprofits in my district reach out to me, even in the last
week saying they still need help.
Recovery is neither instantaneous nor even. That's why it's
sad that Democrats, led by Speaker Pelosi, have chosen politics
over our economic recovery. Let's not forget that the HEROES
Act they point to is nothing more than a wish list messaging
bill that had no chance of becoming law. It wasn't the product
of serious negotiations or committee hearings. Instead, it's
chock full of giveaways to special interests and the rich which
have nothing to do with rebuilding our economy.
The HEROES Act had more mentions of the word ``cannabis''
than the words ``job'' or ``hire.'' It gave more money to state
and local governments that haven't even fully spent CARES Act
money, and it restored the unlimited deduction for state and
local taxes, or SALT. Over half the benefits of the SALT
deduction go to those with annual incomes of $1 million or
more, while only 1 percent of the benefits go to those making
under $100,000 a year.
The nonpartisan Joint Committee on Taxation found that
restoring the unlimited SALT deductions for just two years
would cost almost $137 billion. Meanwhile, the Paycheck
Protection Program, which has been a vital lifeline in my
district and my state for small businesses to keep the lights
on and save jobs, expired last month. And Speaker Pelosi
refuses to allow a vote to keep helping Main Street survive.
Chairman Powell, which would you think would be better for
our economic recovery, and I think you've already answered
this, giving $137 billion to the rich by restoring the SALT
deduction for two years or using that money to fund more PPP
loans?
Mr. Powell. Again, I don't want to get into your fiscal
debates with one another, but I do think small businesses would
benefit from more PPP support, and I think there's probably
very wide agreement on that.
Mrs. Walorski. We definitely have benefited in my district
and my state. Chairman Powell, I think it's an understatement--
I don't think it's an understatement to say that PPP was one of
the most critical lifelines for small business and not-for-
profits in my district. They wouldn't have survived otherwise,
but two weeks ago, Democrats in the Senate blocked a
coronavirus relief package that would have started--restarted
PPP and added new provisions like allowing for those hardest
hit to apply for a second round.
Over here in the House, Republicans have filed a discharge
petition to stop the political games and bring a commonsense
bill to the House floor that would restart PPP, allow a second
loan for those hardest hit, and simplify the forgiveness
process.
Chairman Powell, can you talk about what you've seen from
the macro level on PPP? And I know you've just talked about the
need for a second stimulus. Should a bill that I just
described, which restarts PPP, allows for a second loan, and
simplifies forgiveness be a part of that?
Mr. Powell. I guess I'd start by saying that the good
economic data we've seen since really May is, to a significant
extent, reflects what you did in the CARES Act. Also just the
general reopening of the economy, but those checks, the
unemployment insurance, all of that really helped to keep
people in their homes, keep them spending, and, you know, it's
a tribute to the fast and forceful response that all of you
made.
I think we helped as well, but I think the power of fiscal
policy is unequaled by really anything else. You know, I've
said on a number of occasions, I think it's likely that we'll
need more fiscal support. And the reason I say that is we've
still got, in the payroll numbers, we've still got 11 million
people who haven't gone back to work. If you look at broader
measures of unemployment, it's actually more like 16 million
who are working part time or have left the labor force and
things like that.
So, there's a long way to go. We've come a long way pretty
quickly, and that's great, but there's a long way to go. So, I
just would say we need to stay with it, all of us. The recovery
will go faster if there's support coming both from Congress and
from the Fed.
Mrs. Walorski. Yes, and I want to thank you for your
efforts. I also want to thank the guidance and the amount of
wisdom that President Trump has had in continuing to appeal for
restoring and recovering of our local businesses. I've had two
calls in the last couple of days since I've been out here. One
from a woman on the west side of South Bend that's a social
worker running a behavioral modification agency and one from a
restaurant, 100-year-old restaurant in North Manchester. And
those calls were so disturbing because what they're asking for
is that second round of stimulus. And we were hoping that we
could have got that in this week while we're here. We're still
hoping we can get it in.
I would just plead with Speaker Pelosi and hoping that she
listens to these comments today that we've got to restore and
we've got to let these businesses in our districts rebound.
Lives are still at stake. You know, we are still looking at
saving American lives and saving American livelihoods at the
same time, and there is a balance, but we need her help to
actually get us there.
So, I yield back, Mr. Chairman. Thank you.
Chairman Clyburn. Thank you for yielding back.
The chair now recognizes Mr. Kim for five minutes.
Mr. Kim. Thank you, Mr. Chairman.
And, Chairman Powell, a pleasure to have you before our
Select Subcommittee here.
I wanted to just start by raising something that a former--
your predecessor, former Chairman Bernanke had mentioned. He
had said in the op-ed earlier this year that after the 2008,
2009 recession, an $800 billion Federal program authorized by
Congress was already offset by states through cuts in spending
and layoffs. He said, quote, ``Together with the subsequent
turn to austerity at the Federal level, state and local budget
cuts, meaningfully slowed the recovery.''
He actually told me in a previous hearing before this
committee that, in estimate, he saw that the cost at the state
and local level led to perhaps about a half a percentage point
off the growth rate at a time that the economy was trying to
recover. I feel like I've heard some similar statements coming
from you before, but I just wanted to confirm.
Do you agree with former Chairman Bernanke, his assessment,
that cuts to the state and local funding negatively impacted
the economic recovery after the 2008, 2009 recovery recession?
Mr. Powell. Yes. So, I think there's been a great deal of
research on that question, and it does generally support that
view.
Mr. Kim. And, last week, you said that the current economic
downturn is, I think, quote, ``the most severe in our
lifetime,'' that it's something that's worse than what we
experienced a decade ago.
What I thought about Bernanke's point is, you know, just
how he's trying to frame it here. So, I guess I wanted to just
ask you, would our national economy right now be in a stronger
position to recover from this pandemic and crisis if we could
avoid state and local job cuts and slashes in the way that we
saw in 2008, 2009?
Mr. Powell. Well, again, I don't want to give advice to
Congress on what I'll do, but, yes, and Chairman Bernanke also
said, you may remember, that if we play our cards right, if we
provide the right amount of support, in a few years, this
doesn't really need to leave a permanent mark on the economy.
And I would also say that your first effort, the CARES Act, was
much bigger, of course, than the 2008 response, but, yes.
Overall, I would agree that there's going to be a need for
further support, and I do believe that we'll get further
support. Not sure when or in what quantities or what nature,
but----
Mr. Kim. I appreciate that. And, look, I want to respect
your position here, and I'm trying not to drag you into the
middle of the discussions and the debates that we're having
here in Congress, but just try to understand the frame by which
we should be approaching this. I find that oftentimes we are
talking about this as if it's solely about the support and the
help that our states and our local governments need. Certainly,
we need to be focused on that. You, yourself, had raised the
point that one in seven workers in our country is employed by a
state or local government, about 13 million workers. That is a
huge part of our work force.
That is certainly something here in New Jersey we
experience with full force, but another point that I've been
just trying to highlight based off what Bernanke said and your
comments today is that this is about our country as a whole,
our economy as a whole. It's not just about helping certain
states or certain cities, both red and blue, both Republican
and Democrat, but it's about our national economy as a whole.
So, I just wanted to linger there on this front because I often
hear that the criticisms make it sound like it's trying to--
that they're raising concerns about money mismanagement at the
state level or bailouts of preexisting debt, arguments like
that.
So, Chairman Powell, I want to just dig into that a little
bit. Have you seen any evidence from before, whether 2008,
2009, or the CARES Act or other situations where funding for
state and local governments during times of crisis created
incentives for mismanagement?
Mr. Powell. You know, that's not something--that's really
not something I've looked at.
Mr. Kim. Well, I think that that's something that we've
been trying to press for and trying to understand.
So, I understand where you're coming from on this, but, as
I said for me, I'm trying to figure out if there's a way we can
square the circle here and get through this. I don't know if
you would comment on whether or not there's a way to be able to
provide funding for state and local governments that might be
able to ensure that that money is in a fiscally responsible
way.
Mr. Powell. So, that's very much in your hands to do. I
honestly--we don't really bring anything to that. The idea of
what form to provide, what strings to put on it is really
squarely on your plate.
Mr. Kim. Well, I asked that question to your predecessor.
He said that, quote, that the money could be structured in a
way that could eliminate that incentive. He specified that
there could be things done by block grants or by formulas that
don't relate to existing tax burdens, things like that.
Is that something that you think we should be looking in
to?
Mr. Powell. It certainly sounds like a reasonable thing to
look in to, but as the current Fed Chair, it's really not up to
me to, you know, get into these questions and try to design the
legislation, you know. I think those things are very much in
your bailiwick.
Mr. Kim. No. I appreciate that, and I agree completely, but
your approach in helping us understand the national struggle
that we might face if we don't move at the state and local
level is helpful.
So, with that, Mr. Chairman, I turn back to you.
Chairman Clyburn. Thank you very much.
The chair now recognizes Mr. Green for five minutes.
Mr. Green. Thank you, Chairman and ranking member, and
thank you, Chairman Powell, for testifying today.
I graduated in the top of my medical school class but
barely passed econometrics at West Point. So, I deeply respect
you and your colleagues. I want to digress a second and discuss
school closures, which I and many other physicians, educators,
and behaviorists believe have drastically harmed our children.
We should follow the science, and as a physician, I know
the science is definitive. The CDC has stressed the importance
of kids returning to school saying, and, I quote, ``The harms
attributed to closed schools on the social, emotional, and
behavioral health, economic well-being and academic achievement
of children, in both the short and long term, are well-known in
significant,'' end quote.
There's already extensive research on the summer slide,
according to the Northwest Evaluation Association. In the
summer following third grade, students lose nearly 20 percent
of their school year gains in reading and 27 percent in math.
By the summer after their seventh grade, students lose an
average of 39 percent of their school year gains in reading and
50 percent of their school year gains in math, perhaps
explaining my difficulty in econometrics. Imagine the detriment
a yearlong slide will have on our children. We can't allow this
to happen.
School closures also endanger the emotional and mental
health of children, a recent published--article published in
the Journal of Child and Adolescent Psychiatry found that post-
traumatic stress scores were four times higher in parents and
children in quarantine than those not in quarantine. The CDC
has added that suicides are through the roof. And in one of the
scientific journals that I read as an emergency physician, just
last month, the shutdowns showed an enormous increase in drug
overdose and addiction at all ages, yet Democrats continue to
call for more school closures. They seem willing to put
children and parents through all of this, despite the facts
that of the 587,948 children diagnosed with COVID, only 103
have died. And nearly all of them have significant medical
comorbidities.
Now compare that to over 6,000 suicides a year in children,
4,000 who die a year in automobile crashes, but the left is
clearly not stopping children from riding in cars. There's no
question we know which comorbidities put people at higher risk
for COVID. We can protect at-risk children with virtual
learning while letting the rest go back to in-person school.
We hear the left rambling about science and numbers. Well,
they're clearly ignoring them to keep schools closed, and the
consequences are significant. Chairman Powell, I just--I would
like to ask you, and I've kind of shared a little bit of the
medical side of this, what are the economic impacts on these
school closures?
Mr. Powell. Well, let me say again that these decisions get
made, a lot of them, at the local level. And I'd imagine you
would agree that that's appropriate. You want these decisions,
this is peoples' lives, it's their kids, and to the extent they
get made as close as possible to them, that makes a lot of
sense to me any way.
Mr. Green. No, I'm asking you to elaborate for us on the
economic impact. What's the impact to the economy on these
school closures? I just shared that there's an increase in
suicide; there's an increase in opioids. Only 103 have died out
of 580,000 that have been diagnosed. I can share those numbers.
I'm a physician. I'm asking you the economic impact of all
these closures.
Mr. Powell. I just want to make it clear that I do not have
a judgment on the pace of school closures whatsoever. I'm not--
I don't have one, and I wouldn't say if I did. But, you know,
just as a straightforward matter, if the kids are home, then
some of the parents are going to stay out of the work force,
and lots of people have tried to quantify that. I don't have an
estimate of it.
But parents who have to stay home to take care of their
kids will be there. As to whether that's a good thing or a bad
thing, honestly, it has to do with the safety of kids and
teachers, too, as well. The teachers are probably much more at
risk than the young kids are, I imagine, but nonetheless these
are decisions that are really not for the Fed and----
Mr. Green. I understand the decision on whether or not to
open a school, you know. I was trying to get--you implied a
little bit there. As parents are staying home, that's a
decrease in economic output, and, therefore, it has a
downstream affect in our economy.
So, there is an economic impact, as well as the behavioral
impact that the CDC has highlighted. The increase in suicides,
overdoses, all that stuff in light of 103 deaths out of 587,000
that have been diagnosed.
Mr. Chairman, looks like I'm out of time, so I yield.
Chairman Clyburn. Thank you very much. The gentleman yields
back.
The chair now recognizes Mr. Raskin for five minutes.
Mr. Raskin. Thank you very much, Mr. Chairman. Listening to
our colleagues wax eloquent about how great the economy was
before millions of people were thrown out of work and before we
saw spreading hunger and before, you know, a record number of
Americans are unemployed, is like listening to Herbert Hoover
talk about how great the economy was before the Depression.
I'm also a little surprised that they've decided to go back
to China as a way to distract people from the President's epic
failures in managing this crisis. We know that there were 37
different occasions in January, February, March, and April when
President Trump praised the performance of his great friends in
the autocratic Chinese Communist Party.
Take for example, January 22, Twitter, one of the many
great things about our trade deal with China is it will bring
both the USA and China closer together in so many other ways.
Terrific working with President Xi, a man who truly loves his
country. January 24, China's been working very hard to contain
the coronavirus. The U.S. greatly appreciates their efforts and
transparency. It will all work out well. In particular, on
behalf of the American people, I want to thank President Xi.
I wish I had 20 minutes to read through all of his tweet
statements praising his friends in the Chinese Communist Party.
February 10, at a campaign rally in Manchester, New Hampshire,
I spoke to President Xi, and they're working very, very hard
there, and I think it's all going to work out fine.
February 13, I think they've handled it professionally.
They're extremely capable, and I think President Xi is
extremely capable, and I hope it's going to be all resolved,
and so on. So, either President Trump is an easy mark who got
played and exploited by China or he's been collaborating in all
of the sins that our colleagues are talking about.
Chairman Powell, from the beginning of the pandemic, people
have tried to portray this as a tradeoff between national
public health efforts and national economic efforts. Now that
we're eight months into the nightmare of COVID-19, which has
cost more than 200,000 of our people their lives, what can you
tell us about your assessment of this framing that there's a
tradeoff between public health policy and economic policy?
Mr. Powell. I don't really think there is a tradeoff. I
think that we all want to reopen the economy as fast and as
sustainably as possible, and I think the thing that we can all
do to help that happen is to do what the experts tell us to do,
which is to wear masks and keep social distances, and don't do
those things that will, you know, support the further spread of
the disease.
Again, the two things go together. They're complementary;
they're not in contradiction.
Mr. Raskin. OK. And the President and his advisers have
embraced a policy of herd immunity, which the President
sometimes calls herd mentality, which really means a policy of
mass human sacrifice that has already cost us 200,000 lives and
perhaps hundreds of thousands more on the way if they get their
way of just saying let the disease wash over the population.
Is there any economic reason to compel us to adopt a policy
of herd immunity as opposed to trying to go out and defeat the
disease?
Mr. Powell. So, I never comment on the President's comments
or policies as just as a general rule.
Mr. Raskin. OK. I want to go to the question of dividends
because there are 383 companies that paid dividends to their
shareholders during the pandemic who also were the beneficiary
of the Fed's lending program. For example, the food service
company Cisco laid off about a third of its work force a month
before paying a dividend to its shareholders, and yet they were
a beneficiary in your program.
Caterpillar announced a $500 million distribution to
shareholders on April 8, two weeks after saying that they would
be furloughing workers. So, why is it that they are continuing
to fire workers, give dividends, and they are the beneficiary
of the Fed's stimulus money?
Mr. Powell. So, I guess I would say they really are not
beneficiaries of the program. That refers to the fact that we
bought small amounts of outstanding bonds, already outstanding
bonds, from about--from in the market, bonds of about 800
different companies. And we didn't make a new loan. They got no
credit because of it, and, you know, so they didn't--they're
not actually beneficiaries.
We haven't made a single loan to a corporation as part of
the primary corporate credit facility.
Mr. Raskin. OK. So, I guess I'm a little puzzled by that
because, at least it was my understanding, that all of these
companies are partaking of the Fed's 13(3) authority. Is that
not right?
Mr. Powell. What we're doing is we're buying--we wanted to
buy in the secondary market to support the overall market
function for these big companies that have bond market access,
right. So, we didn't want to pick winners and losers, so we're
buying very small amounts. We created an index of 800
companies, and we're buying very small amounts of their already
outstanding bonds. We didn't ask their permission.
When 800 companies are having small amounts of their bonds
purchased, no one's really benefiting. Really the market--what
it did was it supported market function, which enabled a broad
group of companies to go out and finance themselves, and that
did happen. It happened so successfully that we actually didn't
have to make any direct loans to these companies.
Mr. Raskin. OK. And finally----
I yield back, Mr. Chairman.
Thank you.
Chairman Clyburn. Thank you.
The chair now recognizes Mrs. Maloney for five minutes.
Mrs. Maloney. Good morning, Chairman Powell. It's very good
to see you again.
Mr. Powell. Good morning.
Mrs. Maloney. I want to ask you about economic recovery and
specifically who benefited from the economic recovery. It's
clear to me that large corporations have benefited from the
Fed's rescue programs much more than small-and medium-sized
businesses ever since the Fed promised to essentially back stop
the corporate bond market.
Large corporations have been able to borrow record amounts
of money at rock-bottom rates in order to stay in business, but
small-and medium-sized businesses, on the other hand, had to
wait for months for the Fed to set up the rescue facility for
them. And when the Main Street Lending Program finally went
online, it was woefully insufficient.
So, this has, unfortunately, led to the perception that the
Fed will do whatever it takes to support large corporations but
will only do the bear minimum to support smaller and medium-
sized businesses. In previous testimony, you have stressed the
logistical hurdles to providing meaningful relief to medium-and
small-sized businesses, logistical hurdles that the Fed hadn't
considered before the pandemic.
So, my question is, in the future in order to avoid a
situation where large corporations get substantial, immediate
relief but then smaller and medium-sized businesses are forced
to wait for months for inadequate relief, do you think the Fed
should build out a robust infrastructure ahead of time to
ensure that it can deliver adequate relief in a timely matter
to smaller and medium-sized businesses?
Mr. Powell. So, I do think that the question of how to
apply the lessons that we're learning from Main Street is a
really good one, and it's one that we'll be revisiting, I'm
sure, over time. I guess I would say, though, that this is the
first time in our lifetime and I certainly hope the last time
that we faced such a crisis of credit availability for
nonfinancial companies that the Fed had to use 13(3) to create
facilities to lend to them.
So, it's highly unusual, and, nonetheless, we will learn a
lot, and there may be other ways we can improve upon this. So,
I would say that. I guess I would also say that, you know, the
surveys do show that most small-and medium-sized companies do
have access to credit, and that's not to say they all do. And
certainly credit terms have tightened.
I think the smaller the company, the tighter the credit
terms right now. So--and I would, of course, not fully agree
with your characterizations of Main Street. I think we are
reaching a growing group of companies. We have ongoing interest
in the program, and it's there as a back stop. It can get a lot
larger if the need does grow.
Mrs. Maloney. Do you think Congress needs to act in this
area in any way? Do you think Congress should----
Mr. Powell. I do think, particularly for smaller companies.
It's really not practical for the Fed to try to create a
facility that would deal with millions or hundreds of thousands
of very small loans because a loan is something where you need
documentation under the law to avoid insolvent companies and
have evidence that the company can repay it.
I think something like the PPP program could continue to do
a lot of good in the small-and medium-sized company space
because it's going to take longer than we had hoped for some
companies to be able to get back online.
Mrs. Maloney. Thank you. And I also want to ask you about--
and I'm sure you recall in March there was a tremendous turmoil
in the markets and especially in the Treasury market. This was
very scary for our country because the Treasury market is
probably the most important market in the world, and at the
time the Fed took dramatic action to shore up the Treasury
market. It provided unlimited amounts of cash in the form of
short-term loans on Treasuries and also directly purchased
trillions of dollars in Treasuries through another round of
quantitative easing. These actions were successful, and I
applaud the Fed for taking them, but now that we've had time to
study what went wrong, there seems to be a broad consensus that
highly leveraged hedge funds were at the center of the problem,
and this was the conclusion of the bank for international
settlements. The Office of Financial Research, former Fed
Chairs Yellen and Bernanke, even Governor Quarles has
highlighted the central role that leverage hedge funds played
in the Treasury market dysfunction.
So, in light of the broad consensus, do you think there
needs to be additional reforms to hedge funds to ensure that it
doesn't happen again? Do you think Congress should consider
leverage limitations on hedge funds, or should we just stick to
the current structure and let the Fed rescue the Treasury
market whenever there's trouble?
Mr. Powell. So, actually, I think that there are a number
of important causes. The one you mentioned regarding hedge
funds is part of it, but it's far from the whole story. There
are lots of other factors. More broadly, though, what we're
doing is we're going back now as we did after the financial
crisis, the global financial crisis 10 years ago, and we're
looking at where were the stress points? How did all of the
work we did for the last 10 years, how did it hold up? What
happened that was new? And we're going to be doing a lot of
work on that. We are doing a lot of work on that, and a big--a
central part of it will be the Treasury market and what changes
do we need to make in and around the Treasury market so that we
don't have this happen again
Mrs. Maloney. My time is expired.
Chairman Clyburn. Thank you very much.
All time has expired for questions. We will now yield for
closing statement to the ranking member.
Mr. Scalise. Well, I thank the chairman, Chairman Clyburn,
for hosting the hearing.
And, Chairman Powell, again, thank you for the work you're
doing during an incredibly difficult time. The Federal Reserve
has stepped up like so many other Federal agencies to manage
what is an unprecedented time in America's history, a time that
we mourn the deaths we've experienced in America. We are
managing through finally getting our economy back open, seeing
economic growth, helping families get back on their feet, which
is an ongoing process, while we also follow the science and get
to a cure to get multiple vaccines, hopefully in the stage of
approval from the FDA, which could happen in a matter of weeks
to see this revolutionary work that's being done with a
partnership between the FDA, CDC, working with the best
scientists, not just in America but in the world, to get us to
vaccines by some of the most respected companies in the world.
Most of them headquartered here in America, something we ought
to be proud of, something this President has led the effort on.
I know there's a lot of talk about China. There ought to be
a lot of talk about China because China lied to us, and not
just to America but to the whole world. If China would have
been candid with just the United States, let alone the other
countries around the world, we all could have seen dramatic
reduction in deaths. You know, when you look at the deaths all
around the world, obviously, we are concerned about all the
deaths. We want to do everything we can to stop deaths here in
America, doing the things we can do.
Do you know if just five states who many of us on this
committee worked to uncover, we still haven't gotten the
answers we want, we still haven't gotten the transparency we
want, but five states broke with President Trump's guidelines,
went against the CDC guidance from the scientists, and sent
nursing homes patients who were COVID positive in hospitals
back to the nursing homes. More than 25,000 seniors died who
shouldn't have. If just those five governors would have
followed the President's guidelines from his medical experts,
we would not even be on this list of the top ten deaths. So, we
need to keep working to get those answers. But the fact that we
haven't had one hearing on this committee on China, the country
not only who started this virus but the country who lied to the
rest of the world, to increase the number of deaths that
occurred in every country. We need to have that hearing to get
those answers, to get the facts out because we know a lot more
about this disease today. The Secretary of HHS, Secretary Azar,
has talked about, if you walked into a hospital back in March,
if you had some of those preexisting conditions that we now
know about that put you at a higher propensity of dying from
COVID, if you walked into that same hospital today, your
chances of walking out of that hospital alive would be
dramatically higher because of medicine.
Doctors know a lot more today than they knew just a few
months ago. They know how better to treat patients. We all know
from the data who's most at risk to save more people, to get
that data out there, but we also know, as Dr. Green and others
have pointed out, that closing down schools when they can
safely reopen is hurting kids. It's going to kill kids.
Deaths are up amongst young people, not from COVID but from
non-COVID related things. There are so many studies that are
showing the harm that's being done to kids for those school
systems that won't safely reopen. The protocols are there for
how to safely reopen. The money is there. We passed in the
CARES Act $150 billion to states. Not one single state has
spent all that money, and that money can be used to safely
reopen schools.
The time for excuses is over. The can-do spirit that's got
us on the verge of a vaccine by multiple companies, and now
today, literally, as we were holding this hearing, a fourth
company's been added to this, Johnson & Johnson, but we're on
the brink.
This is a--you're talking about revolutionary moonshot
items that are being performed by medicine because the can-do
spirit of America. We know we can do this. We know we can get
our economy back up and running to the greatest economy we had
maybe in the history of our country before COVID. We can get
back there. Every income group was doing well, but, as Chairman
Powell pointed out, the lowest income level groups were doing
the best prior to COVID because they were becoming part of the
middle class again, something we all ought to applaud,
something we all ought to achieve, and work to get back to. We
can work to get back to that. We are. We have work to do. We
ought to pass that bill that's sitting out there floundering
before we leave, the bill by Congressman Chabot to take that
PPP money, 138 billion sitting idly that can be turned on today
to help those small businesses who are dying on the vine, who
we don't want to go away. We don't want those jobs to go away.
We can get that done. We ought to get that done. That bill
ought to be on the suspension calendar. It would pass
overwhelmingly if the majority would just bring it up.
So, I appreciate that you've talked about what you're
doing, what others are doing to get this economy back going.
We've obviously talked about what the President is doing
following the science to confront this virus, to get us to the
brink of a vaccine that hopefully everyone who wants to take it
will feel comfortable taking because the FDA's the gold
standard. And it only happens if they approve it. If they
approve it, we all ought to celebrate that achievement because
it would be historic for the world that quickly to get a
vaccine approved.
So, with that, Mr. Chairman, I know we're going to have
other hearings, and hopefully we'll bring up some of these
other issues as we move forward, but I appreciate you holding
this one. And, again, Mr. Powell, thank you for the work you're
doing.
I yield back.
Chairman Clyburn. I thank the ranking member for his
closing statement and for yielding back.
In closing, let me thank you, again, Mr. Chairman, for your
testimony here today. As I shared with you in a previous
conversation, you are among the public servants for whom I have
a great deal of admiration and respect, and I appreciate your
being here today to help us try to determine how best to get
beyond this pandemic, how to improve our economy, and help the
millions of Americans struggling to find jobs, pay rent,
mortgages, and put food on the table.
As you know, Mr. Chairman, this select subcommittee is
modeled on the Truman committee during World War II. As many of
my colleagues know, Harry Truman is one of my political heroes.
I became acquainted with him as an elementary school student
back when he ran for President. I just admired, a gentleman
from Louisville, Missouri, being limited in education but had a
great deal of what it took to make this country what it is
today. I'm one of those few Democrats who's not referred to--I
don't call myself a New Dealer; I'm a fair dealer.
Harry Truman's fair deal is what started me into politics,
and Truman said this about that committee that this
subcommittee is modeled after. Harry Truman said that he sought
to prevent policies that, and I'm quoting him here, that make
the big men bigger and let the little men go out of business or
starve to death. That is what Harry Truman said back in 1941
when we were trying to recover from World War II. And this
committee was modeled after that, and according to our
research, that committee, Harry Truman's committee, cost the
government about a million dollars, but according to our
research, it returned over $16 billion to the Federal coffers.
But beyond that, the research has said that his work saved the
lives of millions of children, untold numbers of children whose
lives were saved by that committee.
And I would say to my friend, the ranking member, he talked
about those four companies that are on the verge, hopefully on
the verge of coming up with a safe--I want to emphasize safe--
vaccine. The fact of the matter is that those companies are
really the recipients of a significant Federal investment. And
I hope that they will get us to saving lives.
However, I caution, according to my readings, neither one
of these four companies included children among the testing
that they're doing. No children.
So, we know that this virus affects children and adults
differently, yet all of the protocol has been on adults. We
have no idea what it would do to children, and we have no idea
what will happen when children are brought back into the
classrooms and what it will do to teachers if we believe that
children may be asymptomatic in many instances.
So, let me remind my friend, the ranking member, that the
Centers for Disease Control and Prevention has made clear that
in-person learning presents the highest risk for spreading the
virus compared to remote or hybrid school. Now I don't know
what's going on in Louisiana, but I do know that school
closings in my home state where the legislature is Republican
controlled--the governor is a Republican, so this is not about
Democrats versus Republican. No Democrat closed any school in
South Carolina. The schools are closed. He and I banter a lot
about Clemson and LSU. I don't know what you're all doing down
at LSU, but Clemson is closed.
Mr. Scalise. Would the gentleman yield?
Chairman Clyburn. I'll be glad to yield.
Mr. Scalise. And this is just a good, candid conversation.
I know we had a hearing--the Vice President came down to LSU's
campus. We had the head of the LSU system and the head of the
Southern University system. I think it's the only historically
Black college and university system. There are a lot of HBCU
colleges, but Southern, I think, is the only full system, and
both of them have opened for in school. They offer hybrid, and
I know a lot of systems, each school system is different.
We have a Democratic governor. We actually work very well
together. I think he's done a good job of allowing school
systems to open and give them the tools they need. Most have,
not all. I think New Orleans starts this week in school, so
some have delayed opening. And they've had good success.
Obviously, they put protocols in place for, if one student
tests positive, how to handle that in that classroom, but
overall it's been going on for probably over a month now. I
know our kids go to school in the city of New Orleans, and
they've been in school for a few weeks now, and it's working
very well. But each school system is obviously handled
differently, but the tools are there, and I know we've put a
lot of that, the work you and I did, all of us did in this
committee and our full House colleagues, the cooperation we did
in the CARES Act has been part of that.
So, I appreciate that, and we're going to continue to
follow that progress. Maybe we can have a hearing on the
Operation Warp Speed status of these four drugs and what else
we can do to spur that kind of progress.
I'll yield back.
Chairman Clyburn. And I thank the gentleman. You made my
point very well. You're doing it. You opened in Louisiana to a
fuller extent than South Carolina. Louisiana has a Democratic
governor. South Carolina has a Republican governor. So, this
isn't about Democrats versus Republicans. It is about who has
the science working for them. We had this administration to ask
us to reopen schools. A lot of schools reopened, but according
to my information, 21,000, 21,000 children and teachers
contracted the virus: 21,000. And a lot of these schools have
been forced to close. The University of North Carolina stayed
open for a week and closed, sent the kids home. They made it
very clear that some of them who did not--this wasn't the
University of North Carolina, another school. All the students
lost their tuition, couldn't get it back.
So, we have a responsibility here to really do what is
necessary for the country. So, I would hope that, as we go
forward with these hearings--and I think on the 2nd, we'll have
a hearing, Mr. Azar will be here. You invoked his name today,
and I would hope you will ask questions of Mr. Azar as to why
the President was so laudatory of China. That may have been the
chilling effect for many of us in dealing with that issue.
Mr. Scalise. And would the gentleman yield on that?
Chairman Clyburn. I'll be glad to yield.
Mr. Scalise. Clearly, we learned a lot more about China. We
were trying to find out information about China in those early
weeks. Clearly, once we found out, you've seen this President
very aggressive against the Chinese Communist Party; in fact,
talking about why we need to bring manufacturing back from
China. The masks, the PPE that we couldn't get because--even a
company like 3M, an American company, they were making PPE in
China, and the Chinese Communist Party banned them from
exporting that back into the United States. So, it showed that
we need to bring that manufacturing back to America. I think we
would probably agree on that. That's something the President,
our President Trump, has been very aggressive about against the
Chinese Communist Party because we've learned this. Again, they
were lying to the world. It wasn't just America they were lying
to. So, if somebody's telling you one thing and, at one point,
you're trying to get information, but for the time being,
they're telling you something. If you find out later it's a
lie, clearly, your attitude toward them will be very different,
which we are seeing.
I yield back.
Chairman Clyburn. I thank the gentleman. I would hope that
we would hear the President apologizing to the American people
for having misled us as to what China was doing. He is the one
that said China was doing a great job. We listened to him. And
I believe that maybe it's time for him to be public in
apologizing to the American people for having misled us.
So, I want to say, Mr. Chairman, at the end of my statement
here, that the Truman statement I mentioned earlier, it really
grabs me. I've studied Truman all of my life, and I think
there's so much that's kind of interesting. At the end of his
Presidency, he was a pretty unpopular fellow. But the more
historians look back on him, the more they elevate him in the
history books. And I believe it won't be long before he'll be
in the top three or four when people get a chance to compare
how his committee dealt with this crisis, calling on the
research from World War I. And if you recall, World War I ended
in, what, 1917. The Spanish Flu hit in 1918. It too was a
double whammy on our economy like we have today.
So, I'm a little bit worried about whether or not we are
heeding to the history here, whether we aren't repeating this
big man versus little man thing here, when we have such a high
level, 250,000, may have been good to get down to. I think we
ought to look at what not to go down to 100,000 or maybe even
50,000 and have--it says to me--for us to be in this thing for
as long as we've been in it and $1.1 trillion sitting there--
99.7 percent of it has not been used--it says to me that we
just don't want to make the kind of policies that are necessary
for little businesses--flower shops, little restaurants need to
be reopened, and they need to receive this money. I can name
you--take you to restaurants where, if they had $100,000 of
that money, they could reopen safely. They could create the
outdoors that's necessary for them to carry on their
businesses. With $100,000, I can assure you restaurants that
would have outdoor patios, that they could keep open and go
back into business, but they can't do it without that kind of
assistance.
So, I want to thank you, Mr. Chairman. I do mean it when I
say that you are among those that I admire and respect, and I
hope that we can work together going forward to get this
economy moving. We cannot do it unless we protect our children,
unless we protect the health of our teachers, unless we do
better by small businesses.
Without objection, all members will have five legislative
days within which to submit additional written questions for
the witness to the chair which will be forwarded to the witness
for their--his response.
I ask our witness to please respond as promptly as you are
able to.
With that, this meeting is adjourned.
[Whereupon, at 12:16 p.m., the subcommittee was adjourned.]