Mnuchin denies attempting to hamper incoming administration by ending emergency loan programs
WASHINGTON (AP) – Treasury Secretary Steven Mnuchin has denied 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 heavily used. He said on Friday that Congress could better use the money by reallocating it in another direction to support small business subsidies and extend unemployment assistance.
“We’re not trying to hinder anything,” Mnuchin said in an interview with CNBC. “We don’t need this money to buy corporate bonds. We need this money to go and help the small businesses that are still closed. “
However, critics saw politics at stake in Mnuchin’s decision, saying the action would deprive the new administration of critical support the Fed may need to prop up the economy as coronavirus infections escalate across the board. national.
“There is no doubt that the Trump administration and their congressional toads are actively trying to derail the US economy,” Sen. Sherrod Brown, D-Ohio, said in a prepared statement on Friday. “For months, they have refused to take the necessary steps to support workers, small businesses and restaurants. As a result, the only tool available to us has been these facilities. “
Mnuchin had written to Federal Reserve Chairman Jerome Powell on Thursday to announce his decision not to extend some of the Fed’s emergency lending programs, which were operating with support from the Treasury Department. The decision will end the Fed’s business credit, municipal loan and Main Street loan programs as of December 31.
The move sparked rare criticism from the Fed, which said in a brief statement Thursday that the central bank “would prefer all emergency facilities put in place during the coronavirus pandemic to continue to play their role. important safety net for our still energized and vulnerable economy.
The American Chamber of Commerce also criticized the decision. “A surprise end to the Federal Reserve’s emergency liquidity program, including the Main Street loan program, prematurely and unnecessarily ties the hands of the incoming administration and closes the door on important liquidity options for businesses when they need it most, ”said Neil Bradley, executive vice president of the chamber, in a prepared statement.
Private economists have argued that Mnuchin’s decision to end five of the emergency lending facilities poses an economic risk.
“Although the support measure has been little used so far, the deteriorating health and economic environment could highlight the Fed’s recession-fighting arsenal and trigger an adverse market reaction,” said Gregory Daco, Chief US Economist at Oxford Economics.
By law, the loan facilities required the support of the Treasury Department, which serves as a safety net for any initial losses that the programs might incur.
In his letter to Powell, Mnuchin said he was asking the Fed to return unused funds allocated by Congress to the Treasury.
He said this would allow Congress to reallocate $ 455 billion to other coronavirus programs. Republicans and Democrats have been deadlocked for months on approving another round of coronavirus support measures.
After meeting with Mnuchin on Friday, Senate Majority Leader Mitch McConnell said he supported Mnuchin’s decision to let loan programs expire at the end of this year and use the money that had been allocated in the measure of relief from the March virus for other purposes.
“There is obvious good use for these hundreds of billions of dollars in already allocated but unused funds,” McConnell said in a statement. “Congress should reallocate the money to the kinds of urgent, important and targeted relief measures that Republicans have been trying to push through for months.”
In public remarks on Tuesday, Powell made it clear that he hoped the loan programs would stay in place for the foreseeable future.
“When the time is right, and I don’t think that time is yet, or very soon, we’ll put these tools away,” he said in an online chat with a group of businesses in San. Francisco.
The future of municipal and Main Street loan programs took on greater significance with the victory of President-elect Joe Biden. Many progressive economists have argued that a Democrat-run treasury could help the Fed take more risk and make more loans to small and medium-sized businesses and cash-strapped cities under these programs. It would at least provide a way for the Biden administration to deliver stimulus without going through Congress.
None of these programs have so far lived up to their potential, with the municipal loan program providing only one loan, while the Main Street program has provided loans totaling about $ 4 billion to about 400 companies.
Republicans including Senate Banking Committee Chairman Mike Crapo of Idaho and Sen. Pat Toomey of Pennsylvania supported Mnuchin’s decision.
“The intention of Congress was clear: these facilities were to be temporary, provide liquidity and cease operations by the end of 2020,” Toomey said in a statement. “With liquidity restored, they are expected to expire, as Congress intended and the law requires, by December 31, 2020.”
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