Secretary Mnuchin takes warmth in Senate talks to end emergency lending program

Treasury Secretary Steven Mnuchin and Federal Reserve President Jerome Powell testified before the Senate Banking Committee on Tuesday as lawmakers asked – sometimes in fierce exchanges – why Mnuchin announced the expiration date of December 31 for several emergency lending programs under the CARES Act.

The Treasury announcement sparked a rare public disagreement with the Fed that the programs are still needed “as a backdrop to our still tense and fragile economy.”

In a prepared speech on Tuesday, Mnuchin said Congress should use $ 455 billion of unused CARES Act funds to pass another stimulus bill. That amount is a fraction of the $ 2.2 trillion stimulus package approved by the House of Representatives back in September. Roughly half the size of the aid package unpacked on Tuesday by a bipartisan group, made up primarily of moderate members from both sides.

According to Luis D. Alvarado, an investment strategy analyst at the Wells Fargo Investment Institute, it was not exactly accurate to classify the vast majority of these funds as unused, as Mnunchin did. “Markets have realized that the Fed has their backs to everyone,” he said, adding that the speed and magnitude of the Fed’s intervention prevented further destabilization. “The mere effect that the Fed created these emergency facilities has done is pretty much for the markets.”

Banking Committee Chairman, Senator Mike Crapo, R-Id. In his opening remarks, he said it was appropriate to wind up the programs at the end of the year, and committee Republicans largely used the opportunities in the questions to echo the Treasury’s views. a statement that Congress did not want these programs to be extended beyond 2020.

Senator Pat Toomey, R-Pa. He argued that the Fed’s emergency lending provisions were specifically designed to provide liquidity to markets. “We should not use them for any other purpose,” he said, for example, “as a supplement to or complementary to fiscal policy.”

Democratic senators urged Mnuchin to argue that the Fed’s order to return funds from the unused emergency program was strictly not an economic but a legal decision made by Bob Menendez, DN.J. decision to wind up the credit programs.

Sherrod Brown, a D-Oh. hand over the reins to Biden’s team.

Due to the slowdown in the economic recovery, the stalling improvement in the labor market and the prospect of a double wave of Covid-19 infections triggered by holiday gatherings, the central bank argued that despite significant improvements in economic conditions since early spring, confidence that markets will remain stable even if conditions deteriorate.

Dan North, a leading North American economist at Euler Hermes, says that argument makes sense. – If it’s there, it’s less likely to be used. That’s a very good argument for leaving these things in place, ”he said, especially given the potentially harsh winter economic forecasts for both consumers and corporate America. “Right now, I really want to reduce uncertainty and leave things in place,” North said.

While Powell was optimistic about next spring and summer, he also spoke about the importance of “crossing the gap” into the post-pandemic economy, saying fiscal stimulus will get the “lion’s share” of credit to stabilize the economy. spring and will result in a stronger-than-expected recovery.

The coming months will be critical for the nation in terms of public health as well as economics. This was at least the point of agreement between the two officials. Based on conversations with community bankers, Powell said, “We hear that many small businesses are in danger of going out of business in the winter.”

Tim Scott, RS.C. In response to his comments on the major obstacles facing owners of black and Spanish small businesses, Mnuchin acknowledged that many were rapidly approaching the inflection point. “These small businesses can’t wait two or three months,” he said.

“My concern is that with the first round of shutdowns, there have been so many permanent business closures,” North said. Many small businesses that managed to get through this spring will not get to the next without a coordinated policy response, he warned.

“I think we’re going to dig ourselves into a much bigger hole,” North said. “I’m not a big fan of government spending or loose monetary policy, but if you’ve ever had the time, it’s now.”