Fed says economy’s path highly uncertain

America’s economy has shown “marked improvement” since the coronavirus pandemic drove it into recession, but the path ahead remains uncertain and the US central bank will do more if needed, Federal Reserve Chair Jerome Powell told a congressional panel on Tuesday.

Top US economic policymakers opened the door on Tuesday to further aid for small businesses hit by the coronavirus pandemic, but Federal Reserve Chair Jerome Powell said it probably should not be funneled through the central bank.

Stung by criticism that the Fed’s Main Street Lending Program had been ineffective in hitting small businesses, Powell told the House Financial Services Committee there was little demand for central bank loans of less than a million dollars.

Noting the rebound in jobs and household spending since the economy cratered in the spring and early summer, Powell said it still remains far from where it was “and the path ahead continues to be highly uncertain... A full recovery is likely to come only when people are confident it is safe to reengage in a broad range of activities” with the coronavirus under control.

Until then, Fed officials “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 said in testimony to the House of Representatives Financial Services Committee.

The hearing, which included testimony from Treasury Secretary Steven Mnuchin, is the first of three this week at which the Fed chief will field questions on the central bank’s response to the pandemic and its implementation of the Coronavirus Aid, Relief and Economic Security Act.

Mnuchin, in prepared remarks to the Democratic-controlled committee, said he felt the economy “will see tremendous third-quarter growth, fueled by strong retail sales, housing starts and existing home sales, manufacturing growth, and increased business activity.” Still, a further “targeted package” of fiscal relief was needed, Mnuchin said.

Congress passed the $2.3 trillion CARES Act aid package in late March as the foundation of the federal government’s economic response to the pandemic. It authorized the Treasury to fund an array of Fed lending and credit programs.

Powell is likely to get an earful from lawmakers concerned that there has been limited use of programs designed to help small businesses even as other Fed actions have ignited a stock market rally that helped investors recoup earlier losses.

Meanwhile, joblessness remains elevated and roughly 29 million people are claiming some form of unemployment insurance on a week-to-week basis. The state of the economy and the path of the pandemic are central issues in the Nov. 3 presidential election.

The pandemic dealt a death blow to the longest-ever US economic expansion when widespread business shutdowns and stay-at-home orders triggered the largest drop in activity since at least World War Two. The Fed responded by cutting interest rates to near zero, ramping up bond purchases and launching nearly a dozen emergency credit facilities, several with Treasury’s backing.

In all, Powell said, the Fed has “helped unlock” $1 trillion of funding to keep businesses from shutting so that they can more easily rehire workers when the economy picks up. But not that much has actually been lent to firms. Far from it.

The Fed’s $600 billion Main Street Lending programme has so far lent or is in the process of lending $2 billion to businesses that cannot otherwise obtain credit, Powell said. Critics say the Fed and Treasury should make it easier to borrow.

Congress is at an impasse on negotiations over additional support for out-of-work Americans after a $600-a-week federal supplement to jobless aid expired over the summer.

Powell has said that additional federal stimulus is likely to be needed, though top White House economic adviser Larry Kudlow says the recovery is “self-sustaining” without it.

Tuesday’s hearing is being chaired by Democratic Representative Maxine Waters of California. Powell on Wednesday will appear before a hearing of the House Select Subcommittee on the Coronavirus Crisis chaired by Democratic Representative James Clyburn of South Carolina, and on Thursday before a hearing of the Senate Banking Committee chaired by Republican Senator Mike Crapo of Idaho. Mnuchin will also testify before the Senate hearing on Thursday.

Reuters