Nov 20, 2020 - Economy

Emergency Fed lending programs to expire under Mnuchin

Photo of Steve Mnuchin wearing a mask

U.S. Treasury Secretary Steven Mnuchin. Photo: Caroline Brehman-Pool via Getty

The Treasury Department will not extend several Federal Reserve lending programs set to expire by year's end that were put in place at the start of the COVID-19 pandemic.

Why it matters: There is concern that pulling the plug on these loan programs will negatively impact the still-fragile economy. Eliminating the programs could hobble the Fed and make it harder to revive similar assistance under a new Congress.

The big picture: The Fed previously said in a statement that it preferred to retain the emergency facilities in full, but chair Jerome Powell wrote in a letter released Friday that the central bank will comply with Treasury Secretary Steven Mnuchin’s directive to return unused funds.

  • Mnuchin has said the move will allow Congress to re-appropriate more than $450 billion to other coronavirus programs, per the AP.
  • “We will work out arrangements with you for returning the unused portions of the funds allocated to the CARES Act facilities in connection with their year-end termination," Powell said.

The programs affected include:

  • Corporate bond buying.
  • Loans to state and local governments.
  • Loans to small- and medium-sized businesses.

What they’re saying: “By asking for the money back, what Mnuchin does is he makes sure it’s not there for Biden’s Treasury secretary," Krishna Guha, vice chair of independent research firm Evercore ISI, told the Wall Street Journal. "You’re greatly reducing the firepower that’s available to your successor. This is reckless politicization of market-stabilization policy.”

  • Sen. Sherrod Brown, (D-Ohio,) said in a statement: “There can be no doubt, the Trump administration and their congressional toadies are actively trying to tank the U.S economy,” per the AP. "For months, they have refused to take the steps necessary to support workers, small businesses and restaurants. As the result, the only tool at our disposal has been these facilities.”
  • But Mnuchin called the move a “very simple thing” and said it is “not a political issue” in an interview with CNBC on Friday. “Markets should be very comfortable that we have plenty of capacity left,” he said.
  • Up to $800 billion can be deployed as a remedy through the Exchange Stabilization Fund if needed, he added.
Go deeper