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Illustration: Aïda Amer/Axios

A battle over stimulus escalated in Washington on Thursday night: Treasury Secretary Steven Mnuchin put emergency lending programs it set up alongside the Fed chair Jerome Powell on the chopping block.

Why it matters: The coronavirus pandemic is worse than when these facilities were established in the spring — and economists worry about a resulting steep economic backslide.

  • If that happens, Treasury’s move all but ensures the economy and financial markets are flying solo: Congress hasn’t made progress on another aid package — and now the Fed has been hampered in offering support of its own.

What’s going on: The Treasury will let a slew of programs — including one that allowed the Fed to buy up corporate debt, and others that issued loans to small businesses and localities — expire at the end of the year. (It will seek to extend a few other programs, that don’t require Treasury funds.)

  • Among Mnuchin’s reasons: Banks are well-positioned to lend and financial conditions are healthy. Critical markets, like the municipal or corporate debt market, are functioning smoothly after freezing up when the pandemic hit.
  • Worth noting: The Fed programs were a reason markets returned to working order. The Fed simply announced it planned to backstop those markets. That was enough to soothe investors.

The Fed rebuked Mnuchin’s move. The central bank, which almost never issues public statements, said it would "prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy.”

  • The Fed can’t act on its own to make drastic changes to the emergency loan programs — it needs Treasury’s signoff. Extending the programs is considered such a change.

Mnuchin also ordered the Fed to return the unused funds, so Congress can reallocate the money elsewhere.

  • One big concern: This could delay the incoming Biden administration from restarting or green lighting fresh Fed programs. Replenishing these funds would require an act from Congress.

What they’re saying: Mnuchin told Bloomberg late Thursday that businesses need grants — which Congress has the power to dole out — not the loans that a sunsetting Fed program issued.

  • That Fed program, which funds loans to small and midsized businesses, has seen limited demand. So has another meant to lend to cash-strapped localities.
  • Yes, but: The “facilities didn't see large take-up in the past, & they might not be used much more in 2021, but getting rid of them now is adding on even more risk," Ernie Tedeschi, a policy economist at Evercore and former economist at the Treasury Department, said on Twitter.

Between the lines: The programs’ initial September expiration was pushed off earlier this year.

  • There was some expectation that these programs would roll over into next year. The economy is still fragile, against a backdrop of skyrocketing coronavirus cases. The economy could quickly deteriorate, making these expiring programs all the more necessary.

There are questions about what the Fed can do next.

  • Bharat Ramamurti, a watchdog for CARES Act funds, tweeted the Fed can reject Mnuchin’s request — then keep making loans with funds Treasury has already committed.

Go deeper: Steven Mnuchin acts to hobble the Fed

Go deeper

Janet Yellen plays down debt, tax hike concerns in confirmation hearing

Treasury Secretary nominee Janet Yellen at an event in December. Photo: Alex Wong via Getty Images

Janet Yellen, Biden's pick to lead the Treasury Department, pushed back against two key concerns from Republican senators at her confirmation hearing on Tuesday: the country's debt and the incoming administration's plans to eventually raise taxes.

Driving the news: Yellen — who's expected to win confirmation — said spending big now will prevent the U.S. from having to dig out of a deeper hole later. She also said the Biden administration's priority right now is coronavirus relief, not raising taxes.

Trump stock market underperformed Obama's

Data: Yahoo Finance; Chart: Andrew Witherspoon/Axios

U.S. stock markets hit record highs during President Trump's time in office, but mostly underperformed his predecessor.

By the numbers: The stock market selloff that followed the outbreak of the coronavirus pandemic wiped out three and a half years' worth of market gains for Trump. As of March 23, 2020, the S&P 500 had lost 1.5% since Trump's first day in office.

Biden will ask the Department of Education to extend student loan relief

A U.S. flag flies above a building as students graduate from California's Pasadena City College in June 2019. Photo: Robyn Beck / AFP

As part of his day one executive actions, President-elect Biden on Wednesday will ask the Department of Education to extend federal student loan relief, hoping to pause payments and interest accrual until at least Sept. 30.

Why it matters: The relief, in place since March due to the coronavirus pandemic, is set to expire Jan. 31 . The measures, which also include expanding forgiveness and income-based repayment programs, have helped tens of millions of borrowers handle the financial strain brought on by the public health crisis.