Mnuchin said Friday that Congress intended the programs to expire at the end of the year and that the central bank’s interpretation was mistaken. Asked about the Federal Reserve’s criticism by CNBC, Mnuchin fired back: “They weren’t in the room. That’s not their job.”
The split between the government entities most responsible for safeguarding the economy comes at a perilous moment for the country, with coronavirus cases surging and fears mounting of economic head winds to businesses.
Mnuchin emphasized that most of the aid in the expiring programs has not been used and could be better spent to help unemployed Americans and small businesses hard hit by the pandemic. Congressional Democrats have condemned the decision as intended to limit the tools available to President-elect Joe Biden to boost the economy.
The Treasury Department’s move would end most of the Fed’s emergency lending facilities, including the Main Street lending program and municipal liquidity facility, which issues loans to local governments. Democrats also said Mnuchin’s decision could make it more difficult for Biden to use the funding to aid distressed sectors of the American economy without approval from Congress.
“The people who really need this support right now are not the rich corporations — it’s the small businesses; the people that are unemployed. Those are the people we need to help the next few months,” Mnuchin said, calling on Congress to reappropriate the funding. “Let’s go use this money in parts of the economy that need it.”
However, while the Treasury Department has the ability to end the programs, they don’t have the sole authority to reallocate the funding for those programs and would need to secure Fed agreement.
“The emperor has no clothes, so to speak,” said Joe Brusuelas, chief economist at RSM.
Moreover, critics of the move say that Mnuchin could have asked the Fed for some of its untapped Cares money while still leaving the emergency lending programs intact. For example, of the $454 billion pot allotted from the Treasury Department under the Cares Act, only $195 billion has been specifically committed to cover the Fed’s programs, leaving $259 billion that had not.
Mnuchin said he and White House Chief of Staff Mark Meadows would meet with Senate Majority Leader Mitch McConnell (R-Ky.) and House Minority Leader Kevin McCarthy (R-Calif.) on Friday to design a plan to negotiate a stimulus deal with congressional Democrats.
Federal Reserve officials continued to criticize the decision Friday. Charles Evans, Chicago Fed president, called the decision “disappointing” on CNBC. Maryland Gov. Larry Hogan (R) also condemned the move on CNBC on Friday.
“They need flexibility to do lending on an emergency basis,” Hogan said. “I don’t really understand the motivation behind it; I think it’s a mistake.”
The central bank and Trump administration appear to be offering different views of the ongoing risks to the U.S. economy. The statement from the Federal Reserve on Thursday, which called for maintaining the “full suite” of emergency facilities, emphasized the need to backstop “our still-strained and vulnerable economy.”
On Friday, Mnuchin struck a different tone, saying: “The medical emergency may not be over, but I think we’d agree the financial conditions … are in great shape. Corporate bonds have come in; mortgages have come in; the stock market has rebounded.”
Mnuchin also said he and Powell had discussed the issue “extensively” and strongly rejected criticisms that the decision was designed to handicap Biden. He added of Powell: “I’ll let him speak for himself and clarify his remarks. … We’re trying to follow the law as we’re supposed to.”