Treasury wants CARES Act programs to expire. Fed says not so fast

Andrew Cummings
November 20, 2020

Treasury Secretary Steven Mnuchin said Thursday he will not extend several emergency loan programs set up with the Federal Reserve, an action that could hamper the ability of the incoming Biden administration to gain important economic support from the central bank to deal with the ongoing pandemic.

Mnuchin said that he is requesting that the Fed return to Treasury the unused funds appropriated by Congress for operation of the programs.

He said the unused money, along with unused Treasury funds allocated for airlines and businesses critical to national security, would allow lawmakers to use $455 billion for other purposes.

"I don't think the time is yet, or very soon", he said about closing the 13 (3) programs at an event hosted by the Bay Area Council. S&P 500 index emini futures fell 0.7% after they reopened at 6 p.m. EST (2300 GMT) for the overnight trading session.

The announcement sent benchmark U.S. Treasury yields and equity index futures lower.

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

The programmes, particularly the "Main Street" and local government landing programmes, 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.

Neither program has lived up to its potential so far, with the Municipal Lending program making just one loan, while the Main Street program has made loans totaling around $4 billion to about 400 companies.

CNBC reported that as of Thursday, "the top contenders are economist Lael Brainard, a member of the Federal Reserve Board of Governors; Roger Ferguson, the CEO of TIAA; and Janet Yellen, former chair of the Federal Reserve".

Mnuchin's decision added to market anxiety about broader economic growth as data shows the early fast recovery from a historic plunge in the USA economy is fading, with more than 10 million who had jobs in January still out of work.

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. "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 goal".

A senior Democratic aide told Reuters there had been a mid-afternoon meeting on Thursday among congressional aides that discussed coronavirus relief and efforts to pass a $1.4 trillion bill to keep government agencies operating beyond December 11 when current funding expires.

"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 Isaac Boltansky, director of policy research at Washington-based Compass Point Research & Trading.

Other reports by iNewsToday