Treasury Secretary, Steven Mnuchin, on Thursday Nov. 19th, said he would Not extend most of the Emergency Llending Programs run in tandem with the Federal Reserve, a Move the Central Bank immediately Criticized, citing the Fragile Recovery. The Fed’s exceedingly Rare Public Response reflected a Government Divided on how to Respond as the Pandemic surges across the Nation, threatening a New wave of Shutdowns and Marking an Inflection point of the Recovery.
In a Letter to Fed Chair, Jerome H. Powell, Mnuchin not only said that Several of the Programs would Wind Down at the End of the year, but he also requested that Unspent Money allocated to the Fed under the First Stimulus effort, the Cares Act, be Reallocated by Congress. However, the Treasury Department does Not have the Sole Authority to Reallocate the Funds and would need to Secure Fed Agreement.
The Letter triggered a Rare Public Statement from the Fed, Thursday Evening. “The Federal Reserve 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 Central Bank said in a Rare Statement following Mnuchin’s Letter.
Treasury’s move would End most of the Fed’s Emergency Lending Facilities, as well as Two highly Criticized Programs including: the Main Street Lending Program and the Municipal Liquidity Facility, which issue Loans to Struggling Businesses and Local Governments.
Mnuchin also Requested a 90-day Extension of a Few of the Programs that Operate through the Markets.
Treasury and the Fed jointly established a Suite of Emergency Programs in the early days of the Pandemic, and they have at times Clashed over how the Programs should be Structured and how Effective they can be.
The Shared Responsibility also means that certain Decisions can’t be Made by either Powell or Mnuchin Alone, setting the Stage for the Outward-Facing Clash.
“There have been disagreements in the past, but they’re usually handled out of public sight,” said David Wessel, Director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution. “It’s unusual. But these are really unusual times.”
The Decision to Curb the Fed’s Lending Powers comes as New Economic Data is signaling the U.S. Economy is being Newly Battered by a Spike in Coronavirus Cases that are already Triggering a New Wave of Government-Ordered Closures, Restrictions, and Shutdowns.
Unemployment Insurance Claims Rose last week for the First time since Early October.
Democrats criticized Mnuchin’s Decision as a Politically Motivated attempt to Hurt the Economy Biden is set to Inherit. They expressed concern that Senate Republicans could Push for the Funding to be Repurposed in the Next Stimulus Package, decreasing the overall Amount Congress Approves in Economic Relief.
“Secretary Mnuchin is removing critical support from a weak economy against the Federal Reserve’s wishes. This is economic sabotage,” Sen. Ron Wyden (OR), the Ranking Democrat on the Senate Finance Committee, said in a Statement. “Secretary Mnuchin is salting the earth in an attempt to inflict political pain on President-elect Biden.”
There is also the Broader Concern among Democrats and Economists that Ending Programs would Eliminate a Backstop to the Markets before the Recovery is Fully Formed.
The Fed has given No Signal that it’s ready to Wind Down these Programs. Earlier this week, Powell said the Fed was Committed to using All of its Tools “for as long as it takes until the job is well and truly done,” and that “when the right time comes, and I don’t think that time is yet or very soon, we will put those tools away.” Then on Thursday, the Fed issued a Statement pushing Back against Mnuchin’s Letter.
Although the Main Street Lending Program and Municipal Liquidity Program have been widely Criticized for their Onerous Loan Terms and meager Uptake, Fed Officials have argued for months that it would be Premature to Cut-Off that Support until the Recovery is Sustained and the Economy Survives the Dark Winter ahead.
In March, Congress allotted $454 Billion to the Treasury Department, to Support the Central Bank’s Emergency Lending Programs, including those for Struggling Businesses and Local Governments. Those Lending Programs have recently become a kind of Political Football.
RepublicanLlawmakers, including Sen. Patrick J. Toomey (R-PA), who could soon take the Helm of the Senate Banking Committee, said those Programs have served their Purpose. Democrats have been Less willing to Shut Down the Programs altogether, instead pointing to the Lingering Holes in the Recovery and saying there are Plenty of Ways they could be Expanded and given Wider Reach.
In a Statement Thursday Evening, Toomey said Congress’s iItent with the Cares Act made Clear the Programs were meant to be Temporary. “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 purpose: stabilizing credit markets so private credit could once again flow to businesses, states, and municipalities,” Toomey said. “These temporary facilities helped to both normalize markets and produce record levels of liquidity.”
Even so, much of the Money entrusted to the Fed has hardly been Touched, and it’s Unclear how much Money could get Out-the-Door given Specific Rules about how the Money should be Spent.
Of the $454 Billion pot Allotted from Treasury under the Cares Act, only $195 Billion has been Specifically Committed to Cover any Losses the Fed might take through its Programs, including through Loans that Companies Fail to Repay.
Republicans and Democrats have Not Officially discussed a New Coronavirus Economic Stimulus Package since the Presidential Election in November.
President-Elect Joe Biden encouraged Congress to Pass the HEROES Act, a $3 Trillion Package originally Passed by the House of Representatives in May. Republicans have Expressed a desire to Pass a Smaller Bill with GOP Senate Majority Leader, Mitch McConnell, saying he would consider a Bill for roughly $500 billion.
NYC Wins When Everyone Can Vote! Michael H. Drucker
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