US Treasury secretary warns of long-term damage if lockdowns are extended

By Alfonso Fernandez

Washington, May 19 (efe-epa).- The United States’ Treasury secretary warned Tuesday of potential long-term economic damage if lockdown measures imposed by states to halt the spread of the novel coronavirus are further extended.

Steven Mnuchin made his remarks to the Senate Committee on Banking, Housing and Urban Affairs in a joint appearance via videoconference along with Federal Reserve Chairman Jerome Powell, who urged Congress to pass more fiscal stimulus in addition to the nearly $3 trillion already approved.

Amid the country’s worst crisis in 70 years, the two officials evaluated the country’s economic prospects and the effectiveness of the record $2.2 trillion rescue package approved in April to boost an economy battered by the Covid-19-triggered lockdowns.

Mnuchin, a member of US President Donald Trump’s Cabinet, said direct payments to middle-class Americans, small business loans, expanded unemployment benefits and other financial assistance measures are working, although he also called for a gradual reopening after weeks of stay-at-home orders and closures of non-essential businesses.

“There is the risk of permanent damage” if the US does not make further strides toward reopening the economy, Mnuchin told the senators. “We’re conscious of the health issues and we want to do this in a safe way.”

He said to expect economic indicators to continue to worsen in the second quarter but projected that they will improve in the third and fourth quarters of the year.

During his appearance, Mnuchin faced tough questioning from Sherrod Brown, a Democratic senator from Ohio and the committee’s ranking member.

“How many workers should give their lives to increase the GDP or the Dow Jones (a key Wall Street blue-chip index) by a thousand points?” he asked.

Mnuchin replied by saying, “no workers should give their lives to do that, Mr. Senator, and I think your characterization is unfair.”

More than two-thirds of the 50 US states have begun to gradually lift the economic restrictions imposed in the second half of March, although states such as California have still not given the go-ahead for malls to reopen or restaurants to serve customers inside their establishments.

Powell, for his part, told the senators Tuesday that Congress should do all it can to alleviate the economic impact of the coronavirus-triggered lockdowns, making those remarks at a time when legislators are negotiating a new fiscal stimulus package.

“It is worth remembering that the measures taken to contain the virus represent an investment in our individual and collective health. As a society, we should do everything we can to provide relief to those who are suffering for the public good,” he said.

He added that on the monetary side the Fed “is committed to using (its) full range of tools to support the economy in this challenging time,” having already taken steps that include injecting massive liquidity into financial markets, making large-scale purchases of Treasuries and agency mortgage-backed securities and lowering its benchmark interest rate to practically zero.

Powell, however, said those actions are “only part of a broader public-sector response.”

The Fed chairman has not been receptive to calls by Trump and others for the central bank to lower its federal-funds rate into negative territory, which in practice would mean that banks would have to pay to park their excess cash at the central bank and therefore be encouraged to lend those funds out instead.

The Fed has long maintained that monetary tool would not be effective for the US, and last Wednesday Powell said such a move is not under consideration.

The Democratic-controlled House of Representatives last Friday passed a new $3 trillion coronavirus relief package that, if approved by the GOP-controlled Senate and signed into law by Trump, would more than double the amount of stimulus already approved by Congress in response to the current crisis.

But the White House and Republican lawmakers – and even some Democrats – have expressed opposition to certain measures in the bill such as stimulus checks for undocumented migrants. The GOP also wants to make sure that coronavirus relief money is not used to bail out states that had significant budget problems prior to the pandemic.

Trump, meanwhile, has signaled no intention of ceding to Democrats’ demands.

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