In a letter sent Thursday to Fed Chairman Jerome Powell, Mnuchin called on the central bank to return some $ 455 billion in unused funds for programs that expire on December 31. He added that Congress would then be able to reappropriate the money for other purposes.
The move would end several programs meant to help businesses struggling as the pandemic wreaks havoc on the U.S. economy. The money was set aside in March under the CARES Act, a $ 2 trillion stimulus package meant to support the struggling economy by providing financial assistance and loans to struggling businesses, among others. measures.
The Fed’s programs “have clearly served their purpose,” Mnuchin wrote. “The markets reacted positively, spreads tightened and banks continued to lend. ”
The move was immediately thwarted by US businesses: The US Chamber of Commerce called the move shut the door on important liquidity options for businesses at a time when they need it most, “adding that it Unnecessarily ties the hands of the incoming administration. “
The decision also puts the Treasury Department at odds with the Fed. The central bank, a typically apolitical institution, promptly responded to Mnuchin’s letter in a statement saying it “would prefer the full suite of emergency facilities established during the coronavirus pandemic to continue to play its important supporting role for our vulnerable economy. ”
The markets were lower after hours. After finishing slightly higher on Thursday, Dow ( futures contracts lost 245 points, or 0.8%. )S&P 500 ( futures contracts fell 0.7%, while )Nasdaq ( futures contracts fell 0.1%. )
Mnuchin wrote in his letter that in the “unlikely event” that the programs need to be reinstated in the future, the Fed may seek Treasury Secretary approval again.
In a statement, Neil Bradley, executive vice president and policy director of the United States Chamber of Commerce criticized the decision and said the companies “need the full support of the government in providing the resources necessary for a large-scale economic recovery”.
Bradley chose the Main Street Lending program, designed to support small and medium-sized businesses and nonprofits that were in a healthy financial position before the Covid-19 pandemic but no longer have access to credit on terms reasonable.
Bradley said the House is urging “these programs to be extended for the foreseeable future and to call[s] on Congress to pass additional pandemic aid targeting American businesses, workers and industries that continue to suffer. ”
Mnuchin’s decision, however, received support from political allies. Republican Senator Mike Crapo, chairman of the US Senate Banking Committee, praised the move.
Returning unused money “helps reallocate these funds for other uses, such as reducing our national debt or providing additional targeted relief to sectors of the economy that need it most.” Crapo said in a statement.
Jaret Seiberg, analyst at Cowen, said Mnuchin’s decision “seems political”.
“This appears to be a political move on the part of the Trump team to limit what President-elect Joe Biden can do next year to stimulate the economy, especially if Congress fails to embrace a big stimulus.” , he wrote in a research note Thursday. He added, however, that there might be a way for the programs to continue.
“The Treasury may refuse to commit new capital, but we don’t see how it can recall capital already committed,” Seiberg wrote. “This suggests that these programs will remain open beyond December 31, which is positive for cash-strapped small businesses and local governments. ”
Meanwhile, US lawmakers have failed to reach agreement on a second economic stimulus package, despite months of negotiations. Discussions between Mnuchin and House Speaker Nancy Pelosi stammered ahead of the election earlier this month.
Lawmakers on Capitol Hill have become less convinced that any stimulus deal can be made during the lame duck session.
Democrats – including President-elect Joe Biden – have urged Senate Republicans to pass the House Democrats’ Heroes Act, which totals more than $ 2 trillion. But Republicans have made it clear they don’t want to spend much north of $ 1 trillion.
– Matt Egan contributed to this report.