The emergency programs, which were due to expire on December 31 if not extended, have allocated billions of dollars in loans to keep the economy afloat. Their mere presence helped restore stability to the financial system after a coronavirus panic earlier this year threatened to shut down major debt markets.
The Federal Reserve and Treasury have joint responsibility for designing and licensing the programs, some of which were created at the request of Congress in a massive relief package, called the CARES Act, that President Donald Trump signed in March.
in a Letter to Fed Chairman Jerome PowellMnuchin described the lending facility as a success, saying that their joint efforts have strengthened the ability of large corporations, state and local governments, as well as consumers, to borrow money at reasonable rates from private markets, without having to turn to the central bank.
“While parts of the economy are still severely affected and in need of additional financial support, financial conditions have responded and the use of these facilities has been limited,” Mnuchin said.
“I have personally participated in drafting the relevant portion of the legislation and I believe the intention of Congress … was to have the authority to issue new loans or purchase new assets (either directly or indirectly) that expires on December 31, 2020,” the Treasury secretary added. “As such, I am asking the Federal Reserve to return unused money to the Treasury.”
President-elect Joe Biden will be able to re-delegate the programs when he takes office, but that won’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 will soon be “good news for sure” but warned that “the next few months could be very difficult.”
“The Fed will be very committed to using all of our tools to support the economy as long as it takes for work to be done well and in real terms,” he said. “When the time is right – and I don’t think the time has come or very soon – we’ll put these tools away.”
In his letter Mnuchin nodded his head at “the unlikely event that will become necessary in the future to re-establish any of these facilities,” saying that any Treasury chief would be able to use other rainy days’ money under the department’s control or could obtain additional funding from Congress.
He said the unused funds, along with unused Treasury money earmarked for airlines and corporations vital to national security, would allow lawmakers to use $ 455 billion for other purposes.
The move is in keeping with the Senator’s calls. Pat Tommy (R-Pennsylvania), the likely chair of the Banking Committee if the Republican Party takes the Senate, Who said that the programs served their purpose. He expressed concern that, if extended, it would be seen as an alternative to fiscal policy – the tax and spending decisions that fall to Congress and the president.
“I applaud Treasury Secretary Stephen Mnuchin’s decision to end the temporary and emergency lending facilities for CARES Act by the end of the year, as Congress intends and the law requires,” Tommy said in a statement on Thursday. “These facilities, which were built in response to the unprecedented market disruption caused by the COVID-19 pandemic earlier this year, have successfully fulfilled their intended purpose.”
But Democrats urged the opposite, and called on the central bank to make loan terms more generous as the bleak financial outlook for many businesses and municipalities increases the risk of more Americans being disrupted.
“Under its contracts with the Treasury, the Federal Reserve can and should reject a request to return the $ 195 billion in CARES Act funds that the Treasury has already committed to,” Bharat Ramamurti tweetedHe is a former assistant senator. Elizabeth Warren (Democrat, Massachusetts) who now sits on the oversight committee for these emergency programs. “But this indicates that the Treasury will force the Fed to close major programs at the end of the year, unnecessarily eliminating market protection.”
“Fortunately, whatever Trump’s Treasury does, the Biden administration has the power to ask the Fed to restart this lending program next year,” he added. “It is clear that there will still be a need for small businesses and government and local lending programs two months from now.”
America’s largest commercial lobbyists have also voiced dissatisfaction, particularly at the end of the Fed’s “Main Street” lending program designed for mid-sized companies and nonprofits.
“The abrupt termination of the Fed’s emergency liquidity programs, including the Main Street Lending Program, prematurely and unnecessarily connects the hands of incoming management and closes the door to critical liquidity options for companies when they need them most,” said Neil Bradley, chief policy officer at the Chamber of Commerce at statement.
“American companies and workers are tired of these political intrigues when they do everything in their power to keep our economy going,” he said.
Mnuchin approved a 90-day extension to a group of Federal Reserve facilities not tied to CARES Act money that passed in March. These programs are aimed at short-term commercial lending, public market action, and promotion of banks that have lent under the government-backed payroll protection program for small businesses.