The best of the American economic policymakers are trying to ensure that the doors of the Congress are opened further so that further aid is provided to small businesses that have been hit the hardest by the pandemic. And yet, Jerome Powell, the Federal Reserve Chair, stated that this is something that wouldn’t be channeled through central banks. With several coronavirus aids like stimulus packages on the line, the Federal Reserve was quite stung by accusations from the government that the Main Street Lending Program was completely ineffectual. This led to the Federal Reserve Chair stating that there was next to no demand for central bank loans that amounted to less than a million dollars.
Stimulus Packages as a Better Alternative to Underwriting Loans
The Federal Reserve further stated that if Congress was actually looking to receive smaller sums of money that would be given to small businesses, the best way to go about it would be to use something like a Paycheck Protection Program. They had already used it back in the day, and it actually spared the Federal Reserve from underwriting loans to several hundreds of thousands of businesses. This was all claimed by Powell in a testimony that was secured under a Democratic-controlled committee.
PPP would actually be offering loans that could be easily converted into grants that would be provided under certain specific conditions. These loans, usually stimulus packages as coronavirus aids, would not be underwritten by business applicants. Powell believes that underwriting the credit of so many small businesses can prove to be difficult under any circumstance- PPP would be a better way to deal with this issue.
The Secretary of Treasury, Steven Mnuchin mentioned that he would be supportive if the Feds decided to loosen the standards and requirements of the Main Street Lending Program. The main issue would be to allow smaller loans to be passed- $100,000. Also, he believes that the Federal Reserve should have some backup in case of loan defaults. As of now, the minimum allowance for a loan is $250,000. And most of the Democrats are of the opinion that it would be better to reduce it to accommodate as a stimulus package for coronavirus aids.
Mnuchin also stated that he would be fine if a PPP like program cropped up once more, with follow-up aimed at small businesses, and restaurants. Keeping in mind that the main focus would have to be on businesses that were hit the hardest due to the coronavirus pandemic.
Stimulus Package as an Improvement Amidst Risks
Powell was of the opinion that the introduction of several new programs, like the Stimulus package as a form of coronavirus aids, has actually lifted the country out of a severe economic recession. But, it wouldn’t be amiss to say that there is still a long way to go before any improvement becomes permanent. With Presidential Elections coming in a week- fiscal policies might take a nosedive for the worst.
America is gearing up to ensure that the next wave of Coronavirus doesn’t spell another catastrophe for the country. And for that to happen, they need to make sure that stimulus packages are ready for legislation by the Congress- and there is a reduction in the number of loans that the Federal Reserve could provide.