US Treasury declines to extend Fed emergency lending tools

Steven Mnuchin

Mnuchin said that the programs were no longer needed, but in a short but extraordinary response, the Fed publicly disagreed, signaling a rift between the Treasury and the central bank.

But in a statement, the Fed argued for letting the programs continue.

However key provisions of that act - such as a program of loans and grants to small businesses as well as expanded unemployment payments - expired over the summer, raising fears that the United States will endure a new slowdown in growth as virus cases spike nationwide. On Thursday, Biden indicated he was close to announcing his decision. S&P 500 index emini futures fell 0.7% after they reopened at 6 p.m. EST (2300 GMT) for the overnight trading session.

The 10-year Treasury note yield slid 2 basis points and was the lowest in 10 days at 0.83%.

He as essentially rejected the central bank's request for a 90-day extension for four emergency lending programs.

Redirecting the unused Fed money would allow officials to target parts of the economy that are still suffering, Mnuchin said.

In a letter to Fed Chair Jerome Powell, Mnuchin described the lending facilities as successful, saying their joint efforts had boosted the ability of large corporations and state and local governments, as well as consumers, to borrow money at reasonable rates from private markets, without needing to turn to the central bank.

The U.S. economy had a "strong" recovery after a partial shut down this spring due to the pandemic, Mnuchin said in the interview.

Neither program has lived up to its potential so far, with the Municipal Lending program making just one loan, while the Main Street program has made loans totaling around $4 billion to about 400 companies.

The Fed and Treasury have joint responsibility for designing and authorizing the programs, some of which were created at the behest of Congress in a massive relief package, called the CARES Act, signed by President Donald Trump in March.

Negotiations between Democrats and Republicans in Congress along with Mnuchin on passing another stimulus measure have been deadlocked for months.

Democratic U.S. Representative James Clyburn, chairman of the House Select Committee on the Coronavirus Crisis, said there was "absolutely no justification" for Mnuchin to shelve the Fed's lending programs in the midst of the health crisis, and asked him to reverse the decision.

"These facilities. have successfully achieved their intended objective", he said.

If the Fed returns the CARES Act funds, it would shut down the Primary Market Corporate Credit Facility, the Secondary Market Corporate Credit Facility, the Term Asset-Backed Loan Facility, the Municipal Liquidity Facility and the Main Street Lending Program on December 31.



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