Key Powell & Mnuchin Testimony

Below is some important testimony from Fed Chairman Powell and Treasury Secretary Mnuchin when they were asked to appear before the Senate Banking, Housing, and Urban Affairs Committee.

Jobs

Powell: The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II. We’re seeing a severe decline in economic activity and employment, and already the job gains from the last decade have been reversed. Well, more than 20 million people have lost their jobs and recent Fed research shows that what others have also found, that people earning less are the ones being hardest hit. This reversal of economic fortune has caused a level of pain that is hard to capture in words, as lives are upended amid great uncertainty about the future.

Powell: Well, the job losses that have been happening have been happening in the service economy and particularly in those parts where you’re dealing directly with people, and that is a lot of less well-paying jobs and that sort of thing. So, if you look at the industries that have been really hard hit with job losses, it’s those industries. It’s restaurants, hotels, it’s travel, things like that, retail. And I recommend, by the way, to have a survey of household economic decision making, which we released annually. We just released it. And that’s where those statistics come from.

Powell: There’s a lot in there, and it is stunning how quickly households get into financial trouble, how little many lower-income households have in the way of financial resources. These are longer-term problems to deal with. I think, for now, this very much calls on us to do what we can to support the economy. And as I mentioned earlier, we have 20 some million people out of work. We want to do everything we can to create a world where they can go back to their jobs or find new jobs. And I think that’s something all of us as policymakers should be strongly focused on.

Powell: So, these are longer-running problems, which are of course under particular pressure right now. But as an example, a lot of the jobs are in big urban areas more and more. And that’s where the job creation is. And yet, the cost of living in those places is higher and higher, very high. And often, people who are in the service industries providing their services have to commute very long times to be able to afford to live in a place. And so, it’s an issue that’s been with us for a while. It’s not one really that the FED can affect much other than by ordering fair lending laws and things like that. But we can’t really directly affect those, but they are important to our economy.

Powell: Well, I think there are multiple risks. One is just to the extent forbearance doesn’t do the job, you may have people losing their homes. That’s something, given that this is a natural disaster in a way, that’s something that would be great to avoid. You also see the housing industry coming, I wouldn’t say to a halt, but under great pressure and activity being slowly. That’s a lot of jobs right there. So, I think really it comes down to sensibly, thoughtfully opening up the economy in a way that builds confidence and keeps people safe. And I think that’s really important that we do that well. And if we do, these other things will take care of themselves over time.

Mnuchin: So, let me just comment on, I have said publicly, and I’ll say again, I think the job numbers will get worse before they get better. So, I just want to be very clear that I think that June will be a very difficult quarter. As it relates to the CARES act, I take great pride in the bipartisan support on these bills. And these specifics were negotiated on a bipartisan basis very clearly in each one of these programs. And it is our intent in the 13.3 Facilities to fulfill both the spirit and the details of the law. So different facilities have different requirements.

Central Bank Monetary Approach

Powell: So, when we expand our balance sheet, when we buy securities, as you know, Senator, so we bought a lot of treasury in MBS securities to get those markets working. As these facilities grow, we’ll also expand our balance sheet. That expands the money supply. I would expect that over time, and that time will probably not be very soon, but over time, the assets that we have on our balance sheet from this era will come to maturity. They’ll roll out. And the balance sheet will, again, very gradually return. This will be some years down the road, I would think.

Powell: So, what really matters is the size of the balance sheet relative to the size of the economy. And we actually are. That came down quite significantly from the end of 2014, until 2017, just by holding the balance sheet constant. So, it can be done in a way that is sort of passive and gradual. And it was for about three years now. We came down from, what, 25% of GDP to 16 or 17% of GDP. So, it can be done over time. In the meantime, I would say it doesn’t have implications for inflation. It doesn’t have implications, particularly for problematic implications. I am not saying there are no limits to this, but it’s not something that raises financial stability or inflation concerns.

Here are the attached opening statements:

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