Evans Says Treasury Move to Wind Down Fed Programs Disappointing

Daniel Fowler
November 22, 2020

But Mnuchin's plan to shutter a number of the Fed's emergency-lending facilities ran into immediate opposition from Democrats.

While Mnuchin says the programs could be reinstated later if needed, the move to claw back the funding now could make it more hard for the next administration set up by President-elect Joe Biden to bring them back quickly.

Mnuchin and Senate Majority Leader Mitch McConnell discussed the strategy Friday, in the first sign in weeks of possible movement on stimulus in the waning days of the Trump administration.

The announcement on Thursday, which effectively means the programs the Fed created to lend money to businesses and to state and local governments will end after December 31, came as a surprise to Fed officials who said they would prefer to leave the backstops in place.

"Congress should repurpose this money toward the kinds of urgent, important, and targeted relief measures that Republicans have been trying to pass for months", McConnell said in a statement.

The availability of new funds could raise the pricetag closer to a compromise. "This follows a disturbing pattern of this administration putting petty grievances ahead of the health and safety of the American people".

The Bloomberg editorial board said the Fed programs are still needed and should be extended, as expected: "When the programs were created, the clear intent was to extend them as long as necessary, just as the Fed did with its emergency lending facilities during the 2008 financial crisis". The White House reportedly wants to push for a deal to better position the Republican Party in the January runoff election in Georgia, but this state election may, as the Presidential election, again serve as an incentive for both sides to make it look as though they are trying to work for a deal, whilst actually negotiating in bad faith.

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The lending facilities, rolled out earlier this year in response to the onset of the pandemic, are providing a helpful backstop for financial markets, Evans said in an interview Friday on CNBC television.

Mnuchin told Fed Chair Jerome Powell in a letter on Thursday that the $455 billion allocated to Treasury under the CARES Act last spring - much of it set aside to support Fed lending to businesses, nonprofits and local governments - should instead be available for Congress to reallocate.

The major news on the final day of the week was US Treasury Secretary Steven Mnuchin's decision not to extend numerous Fed's government-funded emergency lending programmes beyond 31 December, a decision which the Fed immediately and publicly expressed their disagreement with. "We need this money to go help small businesses that are still closed". He called on House Democrats to join with Republicans in freeing up $138 billion for the Paycheck Protection Program, which could help small businesses keep staff on payrolls. That would provide at least one avenue for the Biden administration to provide stimulus without going through Congress.

In addition to Mr. Mnuchin's meeting with top Republicans on Friday, Mrs. Pelosi and Mr. Schumer are set to meet Friday with Mr. Biden, who has also called for a large relief bill this year.

Mnuchin's latest move on the stimulus talks comes a day after he split with Fed Chairman Jerome Powell over whether to extend a number of emergency lending facilities into 2021. The Treasury Secretary asked Powell to return that money so Congress can spend it on additional relief measures.

Minutes later, the central bank issued its own statement urging that "the full suite" of facilities be kept in place.

The 2020 Cares Act economic rescue package passed in March appropriated cash for the government to finance Fed backstops for everything from municipal to corporate finance after markets buckled when the pandemic hit.

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