Federal Reserve Chairman Jerome Powell on Wednesday defended his organization against a report by Democratic staffers that showed companies issued bonds purchased by the Fed while either furloughing workers or issuing dividends to shareholders during the pandemic.
Powell said that those purchases were in a secondary market, which normally benefit investors or dealers, and not the company.
“We’re buying from another buyer,” he told the House Subcommittee on the Coronavirus Crisis during a hearing on the economic response to the pandemic.
“Those are already outstanding bonds,” he added.
He also stressed that none of the companies received loans from the Fed.
“We made zero loans,” he stressed. “None of those companies see themselves as having gotten a loan from the Fed.”
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Powell explained that the Fed purchased small amounts of bonds across 800 different companies.
“The reason we bought from 800 was we didn’t want to be deciding which companies to buy from and which not,” he said, adding that “they’re not getting a loan from us, at all.”
He also stated that these companies would likely oppose the Fed directly purchasing their bonds.
“We didn’t ask these companies whether we could buy these bonds or not. I think if we said, ‘We want to make you a part of an index,’ they would have probably said, ‘No,’” Powell said. “We had no basis to ask them to do anything. We didn’t ask their permission.”
The staff report is based on the Fed’s Sept. 8 disclosures regarding bond purchases through the Fed’s Secondary Market Corporate Credit Facility, which is a lending facility backed by CARES Act.
It states that the Fed purchased bonds issued by companies that either laid off over a million workers since March (in total) or paid dividends to shareholders. Of this group, 95 of them laid-off workers and issued dividends.
“The Secondary Market Corporate Credit Facility lacks taxpayer and worker protections included in other programs funded by the CARES Act. In particular, the facility imposes no conditions requiring companies to save jobs or limit payments to executives or shareholders to become eligible issuers of bonds purchased by the Fed,” the report states.
While Powell defended his organization against the report’s findings, he also admitted that the Fed purchasing bonds from these companies “doesn’t sound good.”
