US senators announce $ 908 billion stimulus proposal

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A bipartisan group of U.S. senators have proposed a $ 908 billion spending package to break the fiscal stimulus deadlock as Federal Reserve chairman Jay Powell called again on lawmakers to they are more supportive of the government’s economy.

The proposal, led by Mark Warner, the Democrat from Virginia, and Susan Collins, the Republican from Maine, reflects growing concern in Washington over the state of the economy. Negotiations on a new stimulus package collapsed before the November elections and have not resumed.

In a hearing before the Senate Banking Committee on Tuesday, Mr Powell said the recovery had been “faster” than expected, but the labor market was still 10 million jobs below pre-levels. pandemic.

“We can both recognize progress and point out how far we have yet to go,” said Powell, adding that “the lion’s share of the credit really should go to fiscal policy.”

“We will use our tools until the danger is well and truly past, and that may require the help of other parts of government, including Congress,” he added.

Later in the hearing, the Fed chairman said, “We can see the end, we just have to make sure we get there. ”

Treasury Secretary Steven Mnuchin, left, and Fed Chairman Jay Powell testified before the Senate Banking Committee © Susan Walsh / Pool / Getty

The bipartisan Senate proposal announced Tuesday would spend $ 288 billion in aid for small businesses, allocate $ 180 billion in unemployment benefits, and provide $ 160 billion to state and local governments, among its costliest measures. It does not match a stimulus package worth more than $ 2 billion passed by Democrats in the House of Representatives in September, but is greater than the $ 500 billion plan proposed by Senate Republicans in the House of Representatives. same time.

“It would be silly on steroids if Congress left for Christmas without doing an interim package as a bridge,” Warner told reporters Tuesday.

It is not known whether the bipartisan plan will be sufficient to achieve a breakthrough. Joe Biden, the US president-elect, called for the enactment of a stimulus bill before he takes office in January, as he introduced senior officials of his economic team on Tuesday. But he warned that shouldn’t dampen the momentum of his broader economic agenda once he takes office: “Any package passed in the lame duck session will be just a start at best.”

Mitch McConnell, the Republican Majority Leader in the Senate, privately circulated a new stimulus package, according to the Washington Post, but with just over $ 300 billion and falling short of key Democratic priorities, he had to be rejected. It was unclear whether the Democrats made a new offer to the Republicans, and aides declined to provide details.

Steven Mnuchin, Secretary of the Treasury, told the Senate Banking Committee on Tuesday that the Trump administration remained hopeful of a deal. “We support rapid targeted aid,” he said.

The audience with MM. Powell and Mnuchin follows an unusual public split between the Fed and the Treasury Department over the future of credit facilities put in place at the start of the pandemic to stabilize financial markets.

As the Fed pushed for them to be extended, the Treasury asked the central bank to remove several of them – including those that support corporate and municipal debt markets – and return them. unused funds in their vaults.

Mr Mnuchin defended the move, arguing he was following Congress’ intention to end programs at the end of the year – which drew scathing attacks, especially from Democratic senators.

“Aside from using your final months in office to work for the people you have sworn to serve, you seem to be trying to sabotage our economy by stepping out the door,” said Sherrod Brown of Ohio, the most Democratic on the panel. . .

While there are serious concerns about the withdrawal of the Fed’s credit facilities, their mere existence has been more powerful than their actual use.

According to Financial Times calculations based on Fed data released last week, only $ 86 billion of central bank firepower is currently being deployed. That’s about 3% of the low of $ 2.6 billion the central bank said it would make available, and a 20% drop since July, when usage peaked at $ 107 billion.

A bulleted graph showing the Federal Reserve's use of its emergency facilities

There has been little demand for the $ 750 billion business credit facilities and the $ 500 billion municipal loan facility, with the Fed so far providing less than $ 2 billion in loans to just two entities. public. Small businesses have also been reluctant to use the Main Street loan program, which aims to support small and medium businesses. Only $ 5.8 billion of its $ 600 billion capacity has been loaned since its inception.

“The market won’t weaken just because of the announcement. But let’s say that a single large-scale municipal deal that shows low demand will be enough to have a ripple effect and may stoke investor fears – this in turn could cause spikes in volatility, ”Vikram said. Rai, responsible for municipal strategy at Citigroup.

Additional reporting by Brooke Fox in New York

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