Fed chairman disappoints Democrats hoping for fiscal backing
Federal Reserve Chairman Jerome Powell shied away from taking sides in a congressional battle over another economic rescue package, including aid to state and local governments.
In joint testimony with Treasury Secretary Steven Mnuchin, Powell disappointed Democrats who sought to push him to endorse more spending than the nearly $3 trillion Congress has already provided in four economic relief bills (PL 116-123, PL 116-127, PL 116-136 and PL 116-139). The two men appeared by video at a Senate Banking Committee virtual hearing Tuesday.
In recent weeks, Powell has tried to walk a fine line between encouraging Congress to pass additional fiscal relief without overstepping the nominally apolitical central bank's bounds. He's repeatedly warned about the long-term economic consequences from an anemic federal response, saying now is not the time to worry about deficits or inflation.
But Powell sounded a more cautious note Tuesday, saying he wanted merely to point out a risk, not tell Congress what to do. "I do think we need to take a step back and ask, over time, 'Is it enough?'" Powell said.
And when Sen. Bob Menendez, D-N.J., pushed the Fed chairman on the need for state and local aid, Powell resisted. "Senator, we try to stick to our knitting over here," he said. Menendez and Sen. Bill Cassidy, R-La., have won some bipartisan backing for a plan to give an additional $500 billion to states and local governments.
Powell noted that state and local governments employ around 13 percent of the American workforce, and that balanced budget laws could force them to make painful cuts.
Powell and Mnuchin noted that the Fed, with Treasury's blessing and using emergency powers, has created 11 credit facilities in response to COVID-19, nine of which were funded by the money appropriated by Congress in March (PL 116-136). They said $195 billion of the $454 billion provided by Congress has been committed to backstop the lending programs, and Mnuchin said he was ready to allocate the rest after getting the already announced facilities up and running.
The Main Street lending facility will use $75 billion from the Treasury to support up to $600 billion in loans to mid-sized businesses with up to 15,000 employees or $5 billion in revenue in 2019. Mnuchin said the Treasury was ready to take losses on those loans, signaling a willingness to lend to harder-hit businesses that may struggle to repay the debt. Jim Saksa has the full story here.
The bottom line: Powell wants more spending, while trying to walk a fine line.
CBO releases dire economic forecast
The U.S. economy will contract at an annualized rate of almost 38 percent in the second quarter of this year, part of a precipitous fall in economic activity that has ended the longest expansion since World War II.
That's the latest forecast from the Congressional Budget Office, which offered only the slightest improvement in outlook from projections it made last month. The nonpartisan agency estimated in April that gross domestic product would fall this quarter at an annualized rate of 40 percent. The lower figure would still be the worst quarterly GDP reading on record, by far.
Almost 26 million fewer people will be employed in the second quarter, compared to the fourth quarter of 2019, resulting in an unemployment rate of 15 percent and marking the "steepest deterioration in the labor market since the 1930s," the agency said in a report Tuesday.
While the CBO expects the second quarter to be the worst from an economic perspective, it said the economy will recover only slowly from the coronavirus pandemic and associated disruptions, and the damage will be lasting.
Even though the economy is expected to begin growing again later this year, the CBO said that by the fourth quarter of 2021, real gross domestic product and employment are projected to be lower than they were in the fourth quarter of 2019.
The agency attributes the economy's deterioration primarily to a fall in consumer spending, triggered by the closure of businesses and stay-at-home orders beginning in the last two weeks of March. Consumer spending, which accounts for about two-thirds of GDP, dropped by 7.3 percent in March and by an estimated 17 percent in April due to reduced demand and businesses' limited operations or closing. Paul M. Krawzak has all the details here.
Democrats look to close the `homework gap' with internet access
Lawmakers are struggling to close the so-called homework gap between students who have home internet connections and those who don't.
As the pandemic forced schools to close and home schooling to grow, at least temporarily, the lack of internet service in poor and rural communities has become a pressing concern. About 12 million children in the United States don't have access to high-speed internet at home, according to a 2018 estimate by the Joint Economic Committee.
Children of color suffer from the homework gap more than others, but the problem is felt wherever family incomes are low. According to an analysis of 2015 census data by the Pew Research Center, 41 percent of black households and 38 percent of Hispanic households with an annual income less than $30,000 lacked at-home broadband, compared with 35 percent for white households in the same income category. These students are among the most affected by school closures ordered as a result of the COVID-19 pandemic.
Congressional Democrats have proposed new spending measures and regulatory changes designed to help. The House Democrats' latest coronavirus relief package (HR 6800), which the House passed last week, would provide $5.5 billion to close the homework gap and provide "emergency home connectivity needs," according to a bill summary.
Grant recipients could use the funding for laptops and Wi-Fi hotspots to keep students and teachers connected, with 5 percent of the funding set aside for students living on tribal lands. The bill would also codify the terms of the FCC's "Keep America Connected" pledge by prohibiting service providers from abandoning customers who cannot pay as a result of the pandemic.
But that legislation is going nowhere in the Republican-controlled Senate. And bipartisan talks on a compromise measure have yet to begin.
Congress already provided $16 billion in a March relief package (PL 116-136) for the Education Department to provide grants to states to expand access to distance learning. The GOP-controlled FCC is working with the department to disburse those funds. Dean DeChiaro has the full story here.
School meal providers face financial woes
School meal providers say they fear a financial pinch as the pandemic increases delivery costs and school closures mean less revenue.
The School Nutrition Association released a survey of members Monday that found 90 percent of those who responded think their operations will face financial hardship. School closures mean they no longer collect daily revenue from students able to pay full price for their meals, and they can no longer sell items a la carte to students or earn fees from catering services.
Most cafeteria operations rely on those income sources because they operate without funding from their states or school districts.
The survey had a response rate of 32 percent from school food directors or assistance directors who represent 1,894 school districts, the School Nutrition Association said. Together, the districts served 134 million meals in April.
The survey found respondents in 861 districts willing to estimate potential losses, putting them at $626.4 million. The School Nutrition Association said financial losses would make it difficult for school operations to prepare for the fall when schools could fully reopen or continue to require emergency food services for low-income students.
Diane Pratt-Heavner, association spokeswoman, said the survey bolsters the organization's argument for economic relief funding from Congress. House Democrats included $3 billion for child nutrition programs in a relief bill (HR 6800) the House passed last week. Ellyn Ferguson has all the details here.