An Update on the Economy and the Main Street Lending Program

By Eric S. Rosengren

June 19, 2020

Webinar

Greater Providence Chamber of Commerce

Full-text Speech (pdf) Figures (pdf) more

Key Takeaways from Boston Fed President Eric Rosengren’s June 19 Remarks

Takeaway: Ongoing public health concerns have created an unusually complex employment situation, with U.S. unemployment at 13.3 percent, up dramatically from February in all age cohorts. But a return to work by more people is good news only if can be done safely and on a sustained basis.

Excerpt: “If workplaces reopen without the necessary health precautions, the recent increases in payroll employment could be offset by possible business closures and serious health outcomes later. … If reopening can be done in ways that protect public health, then better outcomes now will also translate to better outcomes in the future.”
Takeaway: The economic rebound in the second half of the year is likely to be less than what was hoped for at the outset of the pandemic, due to the continued community spread of COVID-19 and the acceleration of new cases in many states. In addition, more fiscal and monetary policy support will likely be needed.

Excerpt: "I expect the unemployment rate to still be at double-digit levels at the end of the year, given what are likely to be persistent economic headwinds from the pandemic over the second half of the year. And my own more pessimistic forecast does not fully incorporate the challenges of a second wave of the virus.
Takeaway: The economic toll of the virus is closely tied to how well the U.S. can get the public health pandemic under control, but efforts to date have not been particularly successful. A more rapid and complete economic recovery requires better ability to contain the pandemic.

Excerpt: “If there are significant flare-ups in states that have aggressively reopened, the reduction in social distancing that contributes to stronger economic performance in such states now may translate to more depressed economic activity and increased public health issues in those states in the future. … Given the death toll of the virus even with the economic lockdown, I see a substantial risk in reopening too fast and relaxing social distancing too much.”
Takeaway: In two of the past three recessions, lending conditions tightened significantly and restricted the supply of credit. The Federal Reserve created the Main Street Lending Program to facilitate the flow of credit to small to medium-sized businesses.

Excerpt: “The Fed will participate in the lending by purchasing a 95 percent interest in the loan. … By purchasing this percentage of the loans, the Federal Reserve will take on most of the risk that would otherwise need to be absorbed solely by lenders, and will create additional balance sheet capacity for lenders to extend more loans at this challenging time for our country’s economy.”
Takeaway: Recent changes to the Main Street Lending Program made it even more widely attractive for more borrowers, allowing more small and medium-sized business to receive loans.

Excerpt: “Our hope is that this program will, over time, provide an important source of liquidity for small and medium-sized businesses that might otherwise not receive credit on the same terms. In addition, it provides an important backstop should the pandemic be more severe than anticipated this fall.”
Takeaway: The Main Street Lending Program is off to a positive start. The registration and verification process for possible lenders in the program opened on Monday, and as of Thursday, more than 200 financial institutions, large and small, had initiated registration.

Excerpt: “These are still early days in the program, and we are seeing a steady stream of interest … We encourage lenders who have not yet registered to explore the program. … Lenders have a vested interest in the resilience of the businesses in their market, and this program gives them a way to help bridge those businesses that were sound before the pandemic to better days.”