In this week’s roundup, Federal Reserve Chair Jerome Powell tells Congress and the White House they will have to pass legislation providing additional support to individuals and businesses or risk a prolonged recession. Plus, three lawmakers submit a letter asking the Treasury Department and Fed to restrict relief funding for large companies that include private equity firms, and the Securities and Exchange Commission announces leadership changes.
In Message to Lawmakers, Fed Chief Urges Additional Support
The Federal Reserve Chair Jerome Powell lauded the response of policymakers to the COVID-19 pandemic in a speech Wednesday, but he warned of permanent damage to the economy if Congress and the White House don’t do more to provide support for the growing number of jobless individuals and small and midsize businesses.
In a speech delivered at the start of a virtual event at the Peterson Institute for International Economics on Wednesday, Powell commended the quick action taken by lawmakers in the face of the coronavirus outbreak with nearly $3 trillion in aid dispersed so far, but he said it’s not the final chapter given significant downside risk and rising uncertainty.
Powell said the recovery may take some time to gather momentum, and that lawmakers need to consider further support for households and businesses.
“Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,” he said. “This tradeoff is one for our elected representatives.”
To do nothing, Powell added, could pave the way for a wave of “avoidable” business insolvencies that could weigh on growth for years to come.
“The loss of thousands of small- and medium-sized businesses across the country would destroy the life’s work and family legacy of many business and community leaders and limit the strength of the recovery when it comes,” Powell said. “These businesses are a principal source of job creation—something we will sorely need as people seek to return to work.”
A prolonged recession could also discourage investment and expansion, further dampening prospects for recovery.
SEC Investor Advisory Committee to Hold Virtual Meeting Later This Month
The Securities and Exchange Commission’s Investor Advisory Committee will hold a public meeting on May 21.
The committee will hold two panel discussions: a discussion regarding index funds and a discussion regarding credit rating agencies.
Members of the committee represent a wide variety of investor interests, including those of individual and institutional investors, senior citizens and state securities commissions.
Powell avoided policy specifics but said lawmakers ought to “wield powers of taxation and spending” when considering future relief. He also said the central bank would continue to effect supportive actions of its own—through tools like the Main Street Lending Facility—until the crisis has passed.
But Powell underscored the limited power the Fed can exercise. “The Fed has lending powers, not spending powers. A loan from a Fed facility can provide a bridge across temporary interruptions to liquidity, and those loans will help many borrowers get through the current crisis.”
According to Labor Department figures released Thursday, nearly 3 million Americans filed for unemployment benefits, bringing the number of claims filed over the last eight weeks to more than 36 million.
Lawmakers Urge Treasury, Fed to Restrict PE from CARES Act
Members of the House and Senate wrote to the heads of the Treasury and Federal Reserve Wednesday urging the agencies to restrict large companies, including PE firms, from federal aid in order to prevent predatory takeovers.
In a letter submitted May 13, three lawmakers, including Sens. Elizabeth Warren, D-Mass., Amy Klobuchar, D-Minn., and Rep. David Cicilline, D-R.I., urged Treasury Secretary Stephen Mnuchin and Federal Reserve Chair Jerome Powell to use their authority to prevent large companies from using funding provided by the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, to engage in mergers and acquisitions.
“Congress voted to protect American workers and companies from the devastating economic impact of this pandemic, not to finance corporate acquisitions by the very large firms best positioned to weather this crisis,” the lawmakers said in the letter.
Warren, Klobuchar and Cicilline argued that large corporations are “seeking to exploit the crisis to increase their market power” by acquiring small businesses in distress. They expressed concern that CARES Act funding directed toward large companies and investors will lead to job-killing economic concentration. The lawmakers appealed to the Treasury and Fed to stop funding disbursements to them.
The editorial board of Bloomberg has suggested the lawmakers’ concerns are unfounded. In an opinion piece responding to the Pandemic Anti-Monopoly Act proposed recently by Warren and Rep. Alexandria Ocasio-Cortez, the board noted that dealmaking has “all but stopped” during the pandemic.
“The ‘predatory mergers’ that Warren thinks ‘giant corporations and private equity vultures’ will undertake during this crisis are entirely hypothetical,” the authors wrote. “In any event, monopolistic practices are already illegal … Decades of rulemaking and jurisprudence have established standards for evaluating them and protecting consumers.”
The May 13 letter is the latest example of Warren’s opposition to the private equity industry, which began in earnest last July.
Last week, Warren joined Sen. Katie Porter, D-Calif., in submitting a letter to private equity giant Blackstone in response to reports that the firm had “caused financial hardship for patients and health care workers” during the COVID-19 pandemic, and requested it respond to questions by May 15.
Leadership Shakeup at the SEC
The Securities and Exchange Commission announced promotions and recent hires to its executive staff this week.
On May 11, the SEC announced that Peter Uhlmann, managing executive in the office of Chairman Jay Clayton, will assume a new role in the agency’s Office of Compliance Inspections and Examinations.
For the past three years, Uhlmann has served as a lead adviser to Clayton on matters related to agency administration, operations and management.
Later this month, Uhlmann will join OCIE’s Office of Chief Counsel as assistant director for compliance, where he will oversee internal compliance, ethics and operational risk management efforts for the SEC’s National Exam Program and its more than 1,000 employees.
On the same day, the agency announced that John Moses has been named the managing executive, also in Clayton’s office. As managing executive, Moses will advise Clayton on matters relating to agency administration, operations and management, and will serve as his primary liaison to divisions and offices.
Moses previously served as the deputy director in the SEC’s Office of Minority and Women Inclusion.
In addition to Uhlmann and Moses’ promotions, the SEC also welcomed additional members to Clayton’s staff.
Benjamin Glick is an associate editor of Middle Market Growth.