Mnuchin Asks Fed to Return $455 Billion in Unspent Covid-Relief Funds

Darnell Taylor
November 20, 2020

Treasury Secretary Steven Mnuchin called on the Federal Reserve Thursday to let several of its emergency lending programs expire at yearend, and return unused funds appropriated by the Coronavirus Aid, Relief and Economic Security Act to backstop the facilities.

Mnuchin said the programs are no longer needed, but the move goes against the Fed's desire to keep them going, according to a statement from the central bank, in a rare show of public disagreement between the two government agencies.

Stock futures fell Thursday evening after an open dispute emerged between the Federal Reserve and Treasury Secretary Steven Mnuchin over covid emergency funds aimed at helping municipalities and small businesses. This reduces the Fed's ability to support the financial system.

Powell said Tuesday that he didn't think it was time yet to end the programs.

All three major USA stock indexes, however, got a healthy boost overnight after Senate Democratic Minority Leader Chuck Schumer said Republican Majority Leader Mitch McConnell had agreed to revive talks to craft a new fiscal relief package.

S&P 500 futures slipped by 0.5 percent while Dow futures fell by 0.6 percent, canceling out a firmer lead from a strong Wall Street session overnight.

Mnuchin requested that, out of an "abundance of caution", four other Fed lending programs be extended for 90 days.

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The programs, particularly the "Main Street" and local government landing programs, raised the prospect of trillions of dollars in central bank credit flooding into an economy that had been partially shut down in the spring because of the pandemic.

But the programs were considered an important element of the pandemic response, broadened at the behest of lawmakers who wanted the central bank's lender-of-last-resort powers, usually limited to financial institutions, opened to the entire economy because of the pandemic's dramatic impact on commerce.

"I was personally involved in drafting the relevant part of the legislation and believe the congressional intent ... was to have the authority to originate new loans or purchase new assets (either directly or indirectly) expire on December 31, 2020", Mnuchin said.

Some Republicans in Congress feel it is time, however, for the Fed to retrench, even with coronavirus infections at record levels and deployment of a vaccine likely months off. Pat Toomey (R-Pa.), the likely chair of the Banking Committee if the GOP holds the Senate, who said the programs had served their goal. "These facilities, which were established in response to the unprecedented market turmoil caused by the COVID-19 pandemic earlier this year, have successfully achieved their intended objective".

"The liquidity and capital position of US banks ensure that they can fulfill the financing requirements of their customers", Mnuchin wrote in the letter.

"The Fed has been one of the only sources of stability in Washington and removing its latitude to offer support in a shaky recovery is simply nonsensical", said Mr Isaac Boltansky, director of policy research at Washington-based Compass Point Research & Trading.

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