FHE is equivalent to circuits, i.e., every circuit has a representation as a FHE. I feel like the idea is: Circuits can perform arbitrary computations on a limited size input, but not on an arbitrary size inputs. Loops are not a problem, as they are an implementation detail. Unbounded output is not possible on a touring machine that halts for all inputs of size s limited by some constant. There exists a circuit that would compute the same thing, as you can take the (binary encoded) results of the touring machine and just create a truth table from that, which describes a circuit. Circuits are interesting because they are usually limited in size.
So you compile your program into a circuit of a fixed size and can then compute solutions of this size. If you are interested in larger problems, you compile your program into a larger circuit. E.g., a function returing an 32bit integer and taking 20 32bit integers as parameters can be represented this way (without infinite loops, but those aren't covered by turing machines either), no matter the computation within that function.
edit: correction, obviously a circuit can not represent all partial functions, only functions (i.e., all inputs have an output).