Fed sees need for more small business aid, citing 'acute risks' to survival

The central bank signaled that it would keep interest rates low through 2022.

By Zachary Warmblodt @ Politico.com, June 12

The Federal Reserve on Friday warned that struggling small businesses may need more government support even after employers received more than $500 billion in emergency loans.

In a semiannual report to Congress on monetary policy, the Fed said a wide variety of data reveal "an alarming picture of small business health during the Covid-19 crisis."

Surveys suggest that pessimism about business viability is prevalent, with a majority of small businesses seeing revenue losses and half not expecting to return to usual operations within the next six months, the Fed said. It noted that employment declines have been deeper among small businesses than among larger firms.

The Fed said three-fourths of small businesses with employees have applied for government assistance through the so-called Paycheck Protection Program, which Congress created in March to avert layoffs. The program allows businesses to apply for low-interest loans that can be converted into grants if they maintain payroll.

The takeup rate suggests the program "is extremely valuable and timely, and a large share of these applications have been approved," but the Fed said "some industries may face an ongoing need after the program expires." Congress is weighing in what form to keep the program alive in the coming months.

"The pandemic poses acute risks to the survival of many small businesses," the Fed said. "Their widespread failure would adversely alter the economic landscape of local communities and potentially slow the economic recovery and future labor productivity growth."

In the report, the Fed said the broader economic outlook is "extraordinarily uncertain." [....]