“While I recognize that during severe economic crises, federal government assistance to large corporations may be necessary to support the broader economy, public support must always be provided for maximum public benefit,” said Jim Clyburn, chairman of the subcommittee, in his opening speech. “I believe the terms of the Fed’s purchase of corporate bonds could have been improved so that the benefits of both workers and investors are more fairly shared.”
Powell then responded that the central bank wanted to make sure companies were able to borrow money, adding that the Fed had helped raise around $ 1 trillion in credit in the corporate and municipal bond markets by introducing emergency programs to help these two sectors of the economy.
The Fed is buying the bonds from around 800 companies, and there is no estimate of how many jobs the central bank’s efforts have saved.
The Fed announced in March it would buy corporate bonds to calm bond markets that were frozen at the start of the coronavirus pandemic. The central bank said it needed to act quickly in the face of massive government lockdowns that threatened to bankrupt many businesses and result in the loss of millions of jobs.
The Fed followed up on that announcement a few months later and bought up exchange-traded funds that were invested in underlying corporate bonds. And in June it began buying the debts of individual large corporations in the open market, an approach that saved corporations from seeking direct help from the central bank. The Fed’s efforts helped keep interest rates low and fueled investor appetites for even more corporate debt.
Powell was asked about the corporate loan program at a House Financial Services Committee hearing on Tuesday.
MEP Joyce Beatty (D-Ohio) noted that the Fed is also buying bonds from companies in good financial condition and asked Powell how this affects the Fed’s mandate.
Stressed that none of the bond purchases “gave anybody new credit,” Powell added that the Fed’s presence was aimed at keeping these markets going so that these companies can continue to borrow when the stress in the markets rebounds, to make this possible “Keep the employees on the staff.”
The coronavirus subcommittee also condemned the Fed for purchasing a disproportionate number of bonds from fossil fuel companies.
“Investing in oil, gas and coal companies is not only driving climate change, it is also a risky investment given longer-term declines in the industry,” the document says. These companies accounted for 10 percent of the Fed’s bond purchases while employing 2 percent of the workforce in larger companies.