Lack of fiscal support poses downside risk to US economy: Fed chief_china

Daniel Fowler
September 27, 2020

Federal Reserve Chair Jerome Powell indicated that aid to small businesses and support for the unemployed should be prioritized if Congress were to reallocate money away from backstopping the central bank's emergency-lending programs.

Apart from that, Powell and Mnuchin had also urged further federal support that should be more focused on the sectors hit hard by the pandemic such as restaurants and tourism, while a rise of the U.S. existing home sales to a almost 14-year-peak had helped the market to regain some of its earlier losses.

Democrats on the panel urged Mnuchin, one of the administration's top negotiators, to work harder to persuade Republicans in Congress to raise the amount of money they would be willing to support in a new bill.

A House subcommittee released a staff analysis that found that a program in which the Fed bought corporate bonds to try to support companies struggling in the pandemic included buying bonds of companies that laid off more than 1 million workers since March. Despite widespread agreement that Congress needs to do more, these calls for additional stimulus won't jumpstart stalled talks on another relief package.

"South Dakotans have been overwhelmingly supportive of the relief that the PPP brought to small businesses", said Sen.

What's next: Well, it's not another relief package. After some programs expired this summer, President Donald Trump signed executive orders to keep aid flowing, although that effort has produced limited benefit.

"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".

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On Thursday, the Fed chairman and Treasury Secretary Steven Mnuchin will testify to the Senate Banking Committee.

The Treasury still has $200 billion in unused funds earmarked to backstop emergency programs launched by the USA central bank after the coronavirus outbreak, Mnuchin said.

Powell repeated his view that providing more support was essential to keep the economy on a sustained upturn. More than US$200 billion remains unallocated, and several of the programs appear no longer in need of backstops due to their success in calming short-term credit markets. That, with the caveat that government auditors be allowed to go back and review any loans in that category where questions were raised about whether the money was obtained fraudulently.

"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", Powell testified.

"Most Americans can't afford to wait any longer", said Sen. When you've submitted your account email, we will send an email with a reset code.

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