Treasury Secretary Steven Mnuchin on Thursday asked the Federal
Reserve to return all unused coronavirus relief funds set aside for
its emergency lending programs by the end of the year, taking away
a lifeline even as a resurgence in Covid cases threatens to upend
the budding economic recovery.
Mnuchin said the programs are no longer needed, but the move
goes against the Fed’s desires to keep them going, according to a
statement from the central bank, in a rare show of public
disagreement between the two government agencies.
“The Federal Reserve would prefer that the full suite of
emergency facilities established during the coronavirus pandemic
continue to serve their important role as a backstop for our
still-strained and vulnerable economy,” the Fed said.
The emergency programs, which were set to expire Dec. 31 unless
extended, have doled out billions of dollars in loans to keep the
economy afloat. Their mere existence helped restore stability to
the financial system after panic over the coronavirus earlier this
year threatened to shut down key debt markets.
In a
letter to Fed Chair Jerome Powell, Mnuchin described the
lending facilities as successful, saying their joint efforts had
boosted the ability of large corporations and state and local
governments, as well as consumers to borrow money at reasonable
rates from private markets, without needing to turn to the central
bank.
The Fed and Treasury have joint responsibility for designing and
authorizing the programs.
“While portions of the economy are still severely impacted and
in need of additional fiscal support, financial conditions have
responded and the use of these facilities has been limited,”
Mnuchin said.
“I was personally involved in drafting the relevant part of
the legislation and believe the Congressional intent … was to
have the authority to originate new loans or purchase new assets
(either directly or indirectly) expire on December 31, 2020,” the
Treasury chief added. “As such, I am requesting that the Federal
Reserve return the unused funds to the Treasury.”
A Treasury secretary appointed by President-elect Joe Biden
would be able to reauthorize the programs upon taking office, but
that wouldn’t be until late January at the earliest. It is
unclear whether this move will increase pressure on Congress to
provide more economic relief.
At a public event this week, Powell said reports that an
effective vaccine might soon be coming were “certainly good
news” but warned that “the next few months may be very
challenging.”
“The Fed will be strongly committed to using all of our tools
to support the economy for as long as it takes until the job is
well and truly done,” he said. “When the right time comes —
and I don’t think that time is yet or very soon — we’ll put
those tools away.”
Mnuchin in his letter nodded to “the unlikely event that it
becomes necessary in the future to reestablish any of these
facilities,” saying that any Treasury chief would be able to use
other rainy day funds under the control of the department or could
get additional funding from Congress.
He said the unused money, along with unused Treasury funds
allocated for airlines and businesses critical to national
security, would allow lawmakers to use $455 billion for other
purposes.
The move is in line with calls by Sen. Pat Toomey (R-Pa.), the
likely chair of the Banking Committee if the GOP holds the Senate,
who said the programs had served their purpose. He expressed
worry that if they are extended, they would be seen as a substitute
for fiscal policy — the tax and spending decisions that are the
responsibility of Congress and the president.
But Democrats have urged the opposite, calling on the central
bank to make the loan terms more generous as the darkening
financial outlook for many companies and municipalities heightens
the risk that even more Americans will be put out of work.
Mnuchin has approved a 90-day extension for a group of Fed
facilities that aren’t connected to the CARES Act funds passed in
March. Those programs are directed at short-term business lending,
general market functioning, and boosting banks that lent under the
government-backed Paycheck Protection Program for small
businesses.
