US Treasury Secretary Steve Mnuchin faces criticism for his decision to take back Federal Reserve coronavirus funds even as cases surge and businesses close again.
United States Treasury Secretary Steven Mnuchin on Friday pushed back against criticism of his decision to de-fund several Federal Reserve coronavirus lending programmes on December 31, saying the next administration would still have an $800bn “bazooka” to quell financial market distress.
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 $455bn in already-borrowed funds.
Mnuchin told CNBC that the Treasury could quickly recapitalise the Fed programmes if needed, using part of the $84bn 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 $800bn of capacity, so I consider that to be a pretty good bazooka,” Mnuchin said, adding that markets should be comfortable.
Federal Reserve Chairman Jerome Powell and Chicago Federal Reserve Bank President Charles Evans have criticised the Treasury move, saying the programmes – 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,” 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.”
Mnuchin said Congress had always intended for the lending programmes to end on December 31 and sought to reassure markets that the Fed and Treasury had many tools left to support the economy.
Mnuchin denied the move was intended to hamstring the administration of Democratic President-elect Joe Biden, who will take office on January 20.
“We’re not trying to hinder anything,” 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 $600bn in cash would be available from repurposing Fed loan funds, unused money from aid for airlines and defence firms, as well as $130bn left over from the Paycheck Protection Program.
Mnuchin said he and White House Chief of Staff Mark Meadows would speak with congressional Republican leaders later on Friday and would redouble their efforts to pass further stimulus measures.
Senate Republican leader Mitch McConnell backed 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, McConnell said, without mentioning any of the initiatives Democrats have been seeking in new legislation.
Unclear is whether the influx of cash would prompt McConnell to seek to reduce the size of newly appropriated coronavirus aid funds. He had previously advocated a new spending package of about $500bn, far less than the $2.1 trillion sought by House Speaker Nancy Pelosi and Democrats.