US Treasury Secretary Steven Mnuchin on Thursday said he had declined to extend emergency lending facilities established with the Federal Reserve aimed at countering the coronavirus downturn.
The decision, which prompted a protest from the central bank, means the facilities aimed at the inner workings of the US financial system will expire at the end of the year.
“I was personally involved in drafting the relevant part of the legislation and believe the Congressional intent as outlined in Section 4029 was to have the authority to originate new loans or purchase new assets (either directly or indirectly) expire on December 31, 2020,” Mnuchin said in a letter to Fed Chair Jerome Powell.
Minutes after Mnuchin’s announcement, the Fed sent out its own statement, saying it “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.”
As Covid-19 intensified in the United States in March, the Federal Reserve announced a slew of new lending facilities meant to stop financial markets from freezing up as the economy was disrupted by business shutdowns ordered to stop the virus’s spread.
Some of these were backed by funds from the $2.2 trillion CARES Act authorized by Congress, including programs targeted at the corporate credit market, municipal lending and small and medium-enterprises through the Main Street Lending Program.
These are the programs Mnuchin said would not be extended after the end of the year, and requested that the Fed return $455 billion in unused funds allocated for them.
He did however approve 90-day extensions for four programs including those related to major financial institutions known as primary dealers; commercial paper, which finances things like auto loans and home mortgages; as well as the Paycheck Protection Program of loans and grants to small businesses.
Congress aides get involved
Aides to top US lawmakers met on Thursday for yet another restart to talks on a new stimulus spending package to aid the economic recovery from the coronavirus downturn.
The discussions, confirmed to AFP by a senior Democratic aide, come as Covid-19 cases surge nationwide and as the president of a regional Federal Reserve bank warned the United States could see growth contract again in the fourth quarter.
The talks between the staffs of House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer, both Democrats, and Senate Majority Leader Mitch McConnell and House Minority Leader Kevin McCarthy, both Republicans, would address another pandemic relief package, the aide said.
Lawmakers have negotiated for months on passing such a bill, but haven’t come to terms on how much to spend and what to spend it on.
Congress authorized the $2.2 trillion CARES Act in March as the pandemic arrived, but its provisions expanding payments to the unemployed and giving loans and grants to small businesses expired in recent months, and analysts fear a renewed slowdown.
The US is home to the world’s largest Covid-19 outbreak, with 157,950 new infections over the 24 hours prior to Wednesday, the same day that total deaths from the disease climbed above 250,000.
President of the Dallas Federal Reserve bank Robert Kaplan told Bloomberg the resurgence in cases could send US growth back into the red in the October-December quarter.
“If you’d asked me a month ago, I would have said we’re going to grow in the fourth quarter, as much as four or five percent annualized, but… with this resurgence, I think the risks are all (to) the downside,” he said.
US growth cratered 31.4 percent in the second quarter as business shutdowns to stop the virus’s spread took their toll, but rebounded 33.1 percent as states’ moved to ease the shutdowns.