Treasury has asked the Federal Reserve to return unused money, which could prevent a new secretary from restarting major loan programs.
WASHINGTON – Treasury Secretary Stephen Mnuchin said he does not plan to extend many of the major emergency lending programs beyond the end of the year, a decision that could hinder President-elect Joseph R.. . Biden Jr.. The ability to use the Federal Reserve’s enormous powers to mitigate the economic fallout from the virus.
Mr.. Mnuchin said Thursday he will not extend the Fed’s programs that support the corporate bond and municipal debt markets, as well as the one that provides loans to mid-sized companies.. Programs expire at the end of 2020.
Pandemic era programs, run by the Fed but using Treasury money to insure losses, have provided an important pillar that has calmed sensitive markets since the outbreak of the Coronavirus in March.. . Their removal may leave critical corners of the financial world vulnerable to the kind of volatility that ran through the financial system in March. And asking the Fed to return the unused money, Mr.. Mnuchin can stop mr. Biden’s next Treasury secretary to resume efforts in 2021.
The central bank said in a statement: « The Federal Reserve prefers that the full suite of emergency facilities established during the Coronavirus pandemic continue to play an important role as a cushion for our still-stressed and vulnerable economy. ». .
Programs were supported by a US $ 454 billion allocation that was created as part of the government’s pandemic response package. Because of how emergency lending powers work, Jerome H.. Powell, the chairman of the Federal Reserve, needs Treasury secretary’s approval to make major changes to the terms of the program. The expiration date extension is charged as a material change.
“I demand that the Federal Reserve return the unused money to the Treasury,” Mr.. Mnuchin said in a message on Thursday. He noted that he « personally participated in drafting the relevant portion of the legislation » and believes that it is the intention of Congress to stop the programs at the end of the year..
Mr.. Mnuchin agreed to extend other emergency loan programs that do not include those Congressional funds, including those that serve the short-term market for corporate debt, one for money market funds, and one that supports government small business loans..
Allowing the Federal Reserve’s many new programs to expire while the virus continues to rise will hold Democrats back and could hurt the economy completely as the new administration enters office.
Several facilities were used, including one that buys government and local debt and one that encourages banks to lend to small and medium-sized companies, in a light way.. But this is because they are designed to serve as props, which means that borrowers are likely to only use them when times are bad.. As Coronavirus cases rise, the economy may deteriorate again, making it all the more important.
Several programs – including those that support corporate bonds – have worked by convincing investors that the Fed is ready to step in as a lever. Removing them now could undermine that confidence.
If the Federal Reserve returns the unused funds, the Democratic Administration will not be able to simply restart the programs, because the Congressional appropriation cannot be used to make new loans after the end of the year.. The facility could have been extended only because the Treasury loans to the Federal Reserve – which in turn return new loans to other entities and bond purchases – were already due.. It will take new accreditation or some more creative solution to secure facilities against credit losses.
US Treasury Department, Federal Reserve System, Stephen Mnuchin, Joe Biden, Democratic Party
World News – US – Mnuchin ends some federal emergency programs, binds Biden
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