Despite objections from the Federal Reserve, Treasury Secretary Steven Mnuchin decided to allow the expiration of several emergency loan programs, prompting warnings of market instability amid the worsening of the coronavirus pandemic.
Federal Reserve Chairman Jerome Powell had urged Mnuchin to extend programs, which are due to expire on December 31, citing the upsurge in COVID-19 cases and an economy that still has “a long way to go” to recover. .
But in a letter to Powell made public after markets closed on Thursday, Mnuchin said the emergency credit facilities “have clearly achieved their goals” and that their removal would free up $ 455 billion in funds that could be spent elsewhere by the Congress.
The facilities, including the Main Street Loan Program, have supported the business credit and municipal loan markets and provided loans to small and medium-sized businesses and nonprofits. The Treasury Department launched them with the Fed in March and April after the pandemic threatened to freeze credit flows to small businesses, large businesses, cities and states.
“The Federal Reserve would prefer that all of the 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,” the central bank said in a statement Thursday. .
At the US Chamber of Commerce, Director General of Policy Neil Bradley said the “surprise end” of the programs “would prematurely and unnecessarily tie the hands of newcomers.” [Biden] and closes the door to important liquidity options for businesses when they need it most.
As the Wall Street Journal reports, “With the markets in much better shape and the economy improving, Mr. Mnuchin has come under pressure from some Republican lawmakers and members of the Trump administration to end the programs. “
But David Wilcox, the Fed’s former chief economist now at the Peterson Institute, warned that “if the situation collapses and really goes south, it could turn out to be a very damaging step. Secretary Mnuchin will go down in history as the man who took away a safety net when it was really needed.