WASHINGTON (AP) – Treasury Secretary Steven Mnuchin denied that he was trying to limit the choices President-elect Joe Biden will have to promote an economic recovery by ending several emergency loan programs run by the Federal Reserve.
Mnuchin said his decision was based on the programs not being used heavily. He said Friday that Congress could make better use of the money by redistributing it in a different direction to support small business subsidies and expanded unemployment benefits.
“We are not trying to stop anything,”
However, critics saw policy in play in Mnuchin’s decision, saying the action would deprive the incoming administration of the critical support that the Fed might need to support the economy as coronavirus infections increase nationwide.
“There can be no doubt that the Trump administration and their congressional birds are actively trying to fuel the U.S. economy,” Sen. Sherrod Brown, D-Ohio, said in a prepared statement Friday. “For several months, they have refused to take the necessary steps to support workers, small businesses and restaurants. As a result, the only tool we have available has been these facilities. ”
Mnuchin on Thursday had written Federal Reserve Chairman Jerome Powell announcing his decision not to expand some of the Fed’s emergency loan programs, which had worked with the support of the Treasury Department. The decision ends the Fed’s corporate credit, municipal lending and Main Street Lending programs by 31. December.
The decision drew a rare reprimand from the Fed, which said in a brief statement on Thursday that the central bank “prefers that the full range of emergency facilities set up during the coronavirus pandemic continue to serve their important role as a backstop for our still strained and vulnerable economy.”
The U.S. Chamber of Commerce also criticized the movement. “A surprising end to the Federal Reserve’s emergency liquidity program, including the Main Street Lending Program, is prematurely and unnecessarily tying the hands of the incoming administration and closing the door on important liquidity opportunities for businesses at a time when they need them most,” said Neil Bradley. the Vice-President of the Chamber, in a prepared statement.
Private economists argued that Mnuchin’s decision to close five of the emergency loan facilities posed an economic risk.
“Although the backstop measure has been little used so far, the deteriorating health and economic backdrop may shine a bright light on the Fed’s diminished arsenal of recession battles and provoke a negative market reaction,” said Gregory Daco, chief economist at Oxford Economics.
By law, the loan facilities required the support of the Ministry of Finance, which acts as a backstop for the initial losses that the programs may incur.
In his letter to Powell, Mnuchin said he was asking the Fed to return the unused funds allocated by Congress to the Treasury.
He said this would allow Congress to redistribute $ 455 billion to other coronavirus programs. Republicans and Democrats have been stuck for months after approving yet another round of coronavirus support measures.
In public remarks Tuesday, Powell made it clear that he hoped the loan programs would remain in effect for the foreseeable future.
“When the time comes and I do not think the time is yet, or very soon, we will put those tools away,” he said in an online discussion with a business group in San Francisco.
The future of Main Street and the Municipal Lending programs has become more important with the victory of President-elect Joe Biden. Many progressive economists have argued that a democratically led Ministry of Finance could support the Fed, which takes on greater risk and provides more loans to small and medium-sized businesses and cash-strapped cities under these programs. It would provide at least one path for the Biden administration to provide stimulus without going through Congress.
None of the programs have so far lived up to its potential, with the municipal lending program providing only one loan, while the Main Street program has provided loans totaling about $ 4 billion to about 400 companies.
Republicans, including the chairman of the Senate Banking Committee, Mike Crapo of Idaho and Senator Pat Toomey of Pennsylvania, supported Mnuchin’s move.
“Congress’s intent was clear: These facilities should be temporary, provide liquidity and cease operations by the end of 2020,” Toomey said in a statement. “With liquidity restored, they should expire as Congress intended and required by law by December 31, 2020.”
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