U.S. Treasury Secretary Steven Mnuchin on Friday pushed back against criticism of his decision to de-fund several Federal Reserve coronavirus lending programs on Dec. 31, saying the next administration would still have a US$800-billion “bazooka” to quell financial market distress.
Mr. Mnuchin and another Treasury official insisted that the move would not bind the hands of the next Treasury secretary and that grants to firms, more paycheck aid to workers and unemployment compensation were better uses for the US$455-billion in already borrowed funds.
Mr. Mnuchin told CNBC that the Treasury could quickly recapitalize the Fed programs if needed, using part of the US$84-billion that would remain in the Treasury’s little-used Exchange Stabilization funds along with residual Fed capital.
“To the extent these need to be reactivated, we have over $800-billion of capacity so I consider that to be a pretty good bazooka,” Mr. Mnuchin said, adding that markets should be comfortable.
Federal Reserve Chairman Jerome Powell and Chicago Federal Reserve Bank President Charles Evans have criticized the Treasury move, saying the programs – while little used – provided an important backstop for the economy.
“I think that backstop role may be quite important for quite some time so it’s disappointing,” Mr. Evans said on CNBC of the move. “The virus spread is increasing and so there are risks from that... it would be good to have more support coming from all directions.”
Mr. Mnuchin said Congress had always intended for the lending programs to end on Dec. 31, and sought to reassure markets that the Fed and Treasury had many tools left to support the economy.
Mr. Mnuchin denied the move was intended to handicap the administration of Democratic president-elect Joe Biden, who will take office on Jan. 20.
“We’re not trying to hinder anything,” Mr. Mnuchin said, adding that his department would work closely with the incoming administration “if things get certified.”
A senior Treasury official later told Reuters that up to US$600-billion in cash would be available from repurposing Fed loan funds, unused money from aid for airlines and defense firms as well as US$130-billion left over from the Paycheck Protection Program.
Mr. Mnuchin said he and White House Chief of Staff Mark Meadows would speak with congressional Republican leaders later Friday and would redouble their efforts to pass further stimulus measures.
Senate Republican Leader Mitch McConnell backed Mr. Mnuchin’s decision, as did some other Republican senators.
“Congress should repurpose this money toward the kinds of urgent, important, and targeted relief measures” Republicans have been advocating, Mr. McConnell said, without mentioning any of the initiatives Democrats have been seeking in new legislation.
Unclear is whether the influx of cash would prompt Mr. McConnell to seek to reduce the size of newly appropriated coronavirus aid funds. He had previously advocated a new spending package of about US$500-billion, far less than the US$2.1-trillion sought by House Speaker Nancy Pelosi and Democrats.
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