WASHINGTON (AP) – Treasury Secretary Stephen Mnuchin has denied trying to limit the election of President-elect Joe Biden will have to promote economic recovery by ending several emergency loan programs run by the Federal Reserve.
Mnuchin said his decision was based on the fact that the programs were not used heavily. He said Friday that Congress could make better use of the money by redistributing it in another direction to help small business grants and expand unemployment benefits.
However, critics saw that politics played a role in Mnuchin’s decision, saying the action would deprive the incoming administration of critical support that the Fed may need to help the economy as coronavirus infections grow across the country.
“There can be no doubt that the Trump administration and their congressional frogs are actively trying to boost the U.S. economy,” Sen. Sherod Brown, Ohio, said in a statement Friday. “For months, they have refused to take the necessary steps to support workers, small businesses and restaurants. As a result, the only tools we have are these facilities. “
On Thursday, Mnuchin had written to Federal Reserve Chairman Jerome Powell announcing his decision not to extend some of the Fed’s emergency loan programs, which were backed by the Treasury. The decision will end the Fed’s corporate lending, municipal lending and lending programs on Main Street from December 31.
The decision drew rare criticism from the Fed, which said in a brief statement Thursday that the central bank “would prefer the full range of emergency facilities created during the coronavirus pandemic to continue to play an important role as a stop for the still tense.” and a vulnerable economy. “
The US Chamber of Commerce has also criticized the move. “The surprise end of the Federal Reserve’s emergency liquidity program, including the Main Street Lending Program, prematurely and unnecessarily ties the hands of the incoming administration and closes the door to important liquidity options for businesses when they need them most. “Said Neil Bradley, executive vice president of the chamber, in a prepared statement.
Private economists say Mnuchin’s decision to shut down five of the emergency loan facilities poses an economic risk.
“While the suspension measure has not been widely used so far, deteriorating health and economic conditions could shed light on the Fed’s declining arsenal to fight the recession and provoke an adverse market reaction,” said Gregory Daco, chief US economist at Oxford Economics.
By law, credit facilities need the support of the Ministry of Finance, which serves as a precaution against the initial losses that programs may incur.
In a letter to Powell, Mnuchin said he wanted the Federal Reserve to return to Congress the unused funds provided by Congress.
He said that would allow Congress to adjust $ 455 billion to other coronavirus programs. Republicans and Democrats have been at a standstill for months after the approval of another round of measures to support the coronavirus.
In public remarks on Tuesday, Powell made it clear that he hoped the loan programs would remain in place for the foreseeable future.
“When the time comes and I don’t think the time is still or very soon, we will put away these tools,” he said in an online discussion with a business group in San Francisco.
The future of Main Street programs and municipal loans became more important with the victory of President-elect Joe Biden. Many progressive economists argue that the Democratic-led treasury could help the Fed take more risk and lend more to small and medium-sized businesses and cities with money under these programs. That would provide at least one way for the Biden administration to provide an incentive without going through Congress.
So far, none of the programs has reached its potential, with the municipal lending program granting only one loan, while the Main Street program lends a total of about $ 4 billion to about 400 companies.
Republicans, including Senate Banking Chairman Mike Krapo of Idaho and Sen. Pat Toomey of Pennsylvania, backed Mnuchin’s move.
“The intention of the Congress was clear: these facilities had to be temporary, provide liquidity and cease operations by the end of 2020,” Toomi said in a statement. “With the recovery of liquidity, they must expire, as provided by Congress and by law, by December 31, 2020.”
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