WASHINGTON (AP) — Treasury Secretary Steven Mnuchin said Thursday he would not extend several emergency loan programs in place with the Federal Reserve, a move that could hamper the new Biden administration’s ability to secure a significant economic support from the central bank to deal with the ongoing pandemic.
The decision drew a terse rebuke from the Fed.
The central bank said it would “prefer that the full suite of emergency facilities put in place during the coronavirus pandemic continue to play their important role as a safety net for our still strained and vulnerable economy.”
But in a letter to Fed Chairman Jerome Powell, Mnuchin said the Fed’s business credit, municipal loan and main street loan programs would not be renewed when they expire on Dec. 31.
By law, the loan facilities required backing from the Treasury Department, which serves as a safety net for any initial losses the programs might incur.
Mnuchin said he was asking the Fed to return unused funds appropriated by Congress to operate the programs to the Treasury.
He said it would allow Congress to reallocate $455 billion to other coronavirus programs. Republicans and Democrats have been deadlocked for months over approving a new round of coronavirus support measures.
In public remarks Tuesday, Powell made it clear he hoped the loan programs would remain in effect for the foreseeable future.
“When the right time comes, and I don’t think it will yet, or very soon, we will put these tools aside,” he said in an online chat with a business group. based in San Francisco.
The future of the Main Street and Municipal Lending programs took on greater significance with the victory of President-elect Joe Biden. Many progressive economists have argued that a Democratic-led Treasury could help the Fed take more risk and provide more loans to cash-strapped small and medium-sized businesses and cities under these programs. That would at least provide a way for the Biden administration to boost without going through Congress.
Neither program has reached its potential so far, with the municipal loan program providing only one loan, while the Main Street program has provided loans totaling about $4 billion to about 400 businesses.
Mnuchin’s move comes as the resurgence of the virus and slowing consumer spending, along with colder weather that will shut down outdoor dining, will force more small and medium-sized businesses to struggle with lower revenues and potentially to close.
However, Republican Senator Pat Toomey of Pennsylvania said in a statement that he approved of Mnuchin’s decision.
“The intent of Congress was clear: These facilities were to be temporary, provide liquidity, and cease operations by the end of 2020,” said Toomey, a member of the Senate Finance Committee. Congress has provided for it and the law requires it, by December 31, 2020.”
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