Steven Mnuchin rejects renewal of some Fed emergency lending programs
WASHINGTON – Treasury Secretary Steven Mnuchin said on Thursday he would not extend several emergency loan programs put in place with the Federal Reserve, a move that could hamper the new Biden administration’s ability to garner significant economic support of the central bank to deal with the ongoing pandemic.
The decision drew a terse reprimand from the Fed.
The central bank said it “would prefer that all of the emergency facilities put in place during the coronavirus pandemic continue to play their important role as a safety net for our still strained and vulnerable economy.”
But in a letter to Fed Chairman Jerome Powell, Mnuchin said the Fed’s business credit, municipal loan and Main Street loan programs would not be renewed when they expire on December 31.
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.
Mnuchin said he was asking the Fed to return unused funds earmarked by Congress for the operation of the programs 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.
In public remarks 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 business group based 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 around $ 4 billion to about 400 companies.
Mnuchin’s move comes as the resurgence of the virus and slowing consumer spending, as well as colder weather that will close al fresco dining, will force more small and medium businesses to struggle with lower incomes and potentially shut down. .
However, Republican Senator Pat Toomey of Pennsylvania said in a statement that he approved of 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,” said Toomey, a member of the Senate finance committee. Congress provided for it and the law requires it, by December 31, 2020. “