The Fed and the Treasury are butting heads over more emergency relief at a time when spiking virus cases make cooperation more important than ever

REUTERS/Kim Kyung-Hoon/PoolFederal Reserve Chairman Jerome Powell talks with U.S. Treasury Secretary Steven Mnuchin during the G20 finance ministers and central bank governors meeting in Fukuoka, Japan June 8, 2019.
  • The nation’s top two economic-policy officials locked horns on Thursday, a rare public disagreement as the coronavirus pandemic worsens and the pace of economic recovery weakens.
  • Treasury Secretary Steven Mnuchin called for the Federal Reserve to return funds allocated to a spate of emergency lending facilities, leaving five programs to expire at the end of the year.
  • The Fed quickly responded with a public statement. The Treasury should extend “the full suite of emergency facilities” as they continue to support “our still-strained and vulnerable economy,” the central bank said.
  • The Treasury’s action is set to leave the US “without a net” in just a few weeks, Michael Feroli, chief US economist at JPMorgan said. While the Biden administration’s Treasury Secretary can renew some funds, they won’t take power until January 20, he added.
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The two officials leading the government’s response to the coronavirus recession squared off on Thursday over cash remaining in several emergency lending facilities.

Treasury Secretary Steven Mnuchin said late Thursday that he won’t renew the majority of lending programs when they expire at the end of the year. The facilities, established in collaboration with the Federal Reserve, should return unused cash to the government, he said in a letter to Fed Chair Jerome Powell.

“While portions of the economy are still severely impacted and in need of additional fiscal support, financial conditions have responded and the use of these facilities has been limited,” Mnuchin said.

The surprise withdrawal of support triggered a rare public rebuttal from the Fed soon after. The Treasury should extend “the full suite of emergency facilities” as they continue to serve “as a backstop for our still-strained and vulnerable economy,” the central bank said in a statement.


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Mnuchin’s move would allow key programs including the Primary Market Corporate Credit Facility, Municipal Liquidity Facility, and Main Street Lending Program to expire on December 31. The Treasury requested an additional 90 days of operation for four facilities including one supporting the Paycheck Protection Program.

The unusual standoff between the nation’s top economic policymakers arrives as surging COVID-19 infections threaten to derail the economic recovery. The US reported a record 182,832 new cases on Thursday, according to The COVID Tracking Project. New economic restrictions across major cities reignited concerns of a second lockdown period heading into what’s set to be a harrowing winter.

A sudden halt to economic activity also threatens to reverse the nation’s rebound and drive a double-dip recession. Several economic indicators missed estimates and showed a weakening pace of recovery in recent weeks, including weekly jobless claims and retail sales growth.

In an interview with Bloomberg later on Thursday, Mnuchin said he hopes Congress will “seriously consider” reallocating $US580 billion in unused relief funds — which includes cash being pulled from the Fed — toward new stimulus. The US has enjoyed a “strong” economic recovery after spring lockdowns, but still-struggling industries need more fiscal aid as opposed to taking on new debt through lending programs, Mnuchin told Bloomberg.

Congress has made little progress after months of negotiations on a new stimulus bill. House Democrats’ $US2.2 trillion HEROES Act hasn’t been brought to a Senate vote, and Senate Majority Leader Mitch McConnell continues to push for a much smaller bill. The White House bowed out of stimulus talks earlier in the month, leaving McConnell to serve as the top Republican negotiator.

The Treasury Secretary’s decision can leave the economy “without a net” in a matter of weeks, Michael Feroli, chief US economist at JPMorgan, said. President-elect Joe Biden’s Treasury Secretary could move to restart the facilities, but the new administration won’t take office until January 20. Even then, the Biden administration would be limited in how much pre-CARES Act cash it could move into the programs.

“In any event, for about three weeks in January the markets will be operating without the backstop they have had since the spring,” Feroli said.


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