Federal Reserve reportedly returns $42 billion to Treasury following November scuffle over funds, report says

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 Federal Reserve has started transferring billions of dollars in unused stimulus funding back to the Treasury, following on an agreement made after a November scuffle over its return.
  • The transfer began with $US42 billion, and another $US20 billion is expected to be returned soon, Bloomberg reported Friday, citing data from the Fed.
  • “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 wrote in a November 19 letter.
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The Federal Reserve has started transferring billions of dollars in unused stimulus funding back to the Treasury, following on an agreement made after a November scuffle over its return.

The transfer began with $US42 billion, and another $US20 billion is expected to be returned soon, Bloomberg reported Friday, citing data from the Fed. About $US195 billion had been promised to the Fed, which will reportedly keep $US40 billion to cover any losses.

The Treasury funding had backed four CARES Act lending programs, three of which ended with the new year.

The deadline for last active program, the Main Street Priority Loan program, had been extended to Friday. Launched in March, the Main Street program supported small and medium businesses, many of which were struggling during the pandemic.

In November, Steve Mnuchin, Treasury secretary, wrote to Fed Chair Jerome Powell, asking for the funds to be returned.

“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 wrote in a November 19 letter.

Mnuchin’s request included extensions of some funding, including the Fed’s Paycheck Protection Program.

The Fed replied the same day, saying the Treasury should extend “the full suite of emergency facilities.” But Powell backed down, writing in a letter the following day that they could “work out arrangements” to return some funding.

“We will work out arrangements with you for returning the unused portions of the funds allocated to the CARES Act facilities in connection with their year-end termination,” Powell wrote.

The Fed used the funding to buy loans that eligible banks had given to small businesses and others. The Main Street lending program was singled out as having “growing usage,” according to minutes from the mid-December meeting of the Fed’s Board of Governors. They said “more take-up” was expected before end of the program.

Treasury officials haven’t detailed where the returned funds will be deployed, but the agency this week launched a $US25 billion program aimed at renters struggling amid the pandemic.

“The Emergency Rental Assistance Program will help to keep American families in their homes during this challenging time,” said Mnuchin in a statement. “Treasury is implementing this program with unparalleled speed so our state, local, and tribal partners across the country can provide assistance to families in need.”

Powell in November had also noted that funds marked as “non-CARES” would still be available from the Fed as lenders needed them.

“As you noted in your letter, non-CARES Act funds remain in the Exchange Stabilisation Fund and are, as always, available, to the extent permitted by law, to capitalise any Federal Reserve lending facilities that are needed to maintain financial stability and support the economy,” he wrote to close his letter to Mnuchin.

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