WASHINGTON (Reuters) - Exasperated U.S. lawmakers criticized Federal Reserve and Treasury Department efforts to shore up the faltering economy on Thursday, telling officials that their financial rescue efforts have not reached small businesses or homeowners.
“In the face of a collapsing housing market, tightening credit crunch, and record unemployment, it is clear the current course of action is neither stabilizing nor galvanizing the economy,” House of Representatives Small Business Committee Chairman Nydia Velaszquez said at a hearing.
“Rather than trickling down, resources from the Treasury and the Federal Reserve are pooling, and stagnating at the top,” Velaszquez, a New York Democrat, said.
Fed Governor Randall Kroszner told the panel that small businesses are finding it harder to get credit in the current strained economic environment, but said interest rate cuts to date should spur economic activity.
The U.S. economy looks almost certain to join major economies around the world in a recession as the financial crisis that began with mortgage defaults pushes major corporations to the edge of, or into, failure.
Despite extraordinary efforts by central banks and governments in many countries, markets and companies continued to stumble on Thursday.
U.S. stocks plunged as the S&P index hit its lowest level in more than six years on gloomy data about jobless claims and fears of possible failures by U.S. automakers, before recovering on hopes of a bailout for the automakers. Shares of major bank Citigroup fell to the lowest level in almost 13 years on concerns about the hard-hit financial sector.
Kroszner said that in spite of credit concerns, the weakening economy is the biggest challenge confronting small businesses.
Cumulative Fed interest rate cuts to 1 percent from 5.25 percent since September 2007 should lower lending costs and stimulate economic activity over coming quarters, the Fed official said.
A Treasury official said the Treasury’s plan to inject capital into smaller community banks will aid small businesses.
The Treasury is accepting applications from small privately held community bans until December 8. The deadline for publicly traded banks expired last Friday.
“Many of these privately held institutions have strong, long-lasting ties with local businesses,” Karthik Ramanathan, the acting assistant Treasury secretary, said.
“By providing capital to such institutions, Treasury is directly assisting small businesses so that they have the ability to make loans, mitigate funding pressures and promote growth locally,” he told the panel.
But lawmakers were skeptical about the impact of government efforts.
“You two need to get out more,” Texas Republican Rep. Lynn Westmoreland said. “You think this is working... The majority of my constituents don’t think it’s working.”
Reporting by Mark Felsenthal; Editing by Leslie Adler