Aides to the president-elect have looked at the unspent aid as one of many potential tools to boost the flagging economy Biden is set to inherit on Jan. 20, the advisers said. Some of the lending facilities, such as the troubled Main Street Lending Program, have issued few loans and could be revamped to offer more generous assistance to small businesses. In a letter released Thursday, Mnuchin requested that unspent money be reallocated, a decision that would require cooperation from the Fed.
“The Treasury Department’s attempt to prematurely end support that could be used for small businesses across the country when they are facing the prospect of new shutdowns is deeply irresponsible,” Kate Bedingfield, a Biden spokeswoman, said in a statement. “At this fragile moment, as the COVID and economic crises are re-accelerating, we should be reinforcing the government’s ability to respond and support the economy.”
Bedingfield’s comments come amid growing complaints that the Trump administration is impeding the incoming Biden administration’s transition to power early next year. During the Great Recession, the outgoing Bush administration worked closely with the incoming Obama administration on economic plans so as to give it maximum flexibility on policymaking decisions.
On Thursday, the Fed responded to Mnuchin’s decision with an extraordinary rebuke, saying that the central bank “would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop.” The rare public statement revealed a rift between Mnuchin and Federal Reserve Chair Jerome H. Powell, who have worked closely together to stabilize the economy since the pandemic began.
While the Treasury Department has the ability to end the programs, it does not have the sole authority to reallocate the funding for those programs and needed to secure Fed agreement.
Late Friday afternoon, Powell struck a more collaborative tone in a letter to Mnuchin, pointing to the programs’ success in calming the financial system and saying the unused funds would be returned.
“We will work out arrangements with you for returning the unused portions of the funds allocated to the CARES Act facilities in connection with their year-end termination,” Powell wrote.
Still, Powell noted that there are still ample resources in a non-Cares Act Treasury fund that could be tapped for the Fed’s lending facilities if the economy falls under further strain.
Mnuchin has defended his decision to end the programs, including the Main Street Lending Program and the municipal liquidity facility, arguing the funding should be redirected toward more distressed parts of the U.S. economy. A spokeswoman to the treasury secretary did not have any immediate response to Bedingfield’s comment.
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 by CNBC about the Federal Reserve’s criticism, Mnuchin fired back: “They weren’t in the room. That’s not their job.”
Mnuchin also said that the programs were no longer necessary given the recovery in U.S. credit markets and relative stabilization of the American economy. Biden’s policy advisers strongly disputed that view of the economic outlook, citing extreme risks posed by the rising number of coronavirus cases and the expiration of federal protections, such as a moratorium on evictions, at the end of the year.
The split between the outgoing and incoming administration on a key economic policy matter comes at a perilous moment for the country, with coronavirus cases surging and fears mounting of economic head winds to businesses.
Mnuchin has 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. Biden officials have looked at revamping the existing lending facilities so that they are more attractive to struggling small businesses and municipalities seeking avenues for economic relief, the advisers said. Congress could approve more aid for small businesses to supplement the existing Fed facilities, the Biden advisers said.
“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.”
Critics of the move say that Mnuchin could have asked the Fed for some of its untapped money from the Cares Act while 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 Friday with Senate Majority Leader Mitch McConnell (R-Ky.) and House Minority Leader Kevin McCarthy (R-Calif.) to design a plan to negotiate a stimulus deal with congressional Democrats.
On Friday afternoon, McConnell issued a statement saying Congress should repurpose the money and that there “is an obvious right use for these hundreds of billions of dollars of already-allocated but unused funds.”
“American workers should not lose their jobs needlessly when a second round of the job-saving Paycheck Protection Program for the hardest-hit small businesses would make a huge difference,” McConnell said.
Yet the decision continued to receive broad pushback Friday. Charles Evans, Chicago Fed president, called the decision “disappointing” on CNBC. Maryland Gov. Larry Hogan (R) also condemned the move.
“They need flexibility to do lending on an emergency basis,” Hogan said Friday on CNBC. “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 Thursday from the Federal Reserve, 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.”