Mnuchin Defends Work With Fed as Democrats Fault Funds Shift
(Bloomberg) -- Treasury Secretary Steven Mnuchin said he has maintained close coordination with Federal Reserve Chair Jerome Powell throughout the economic downturn sparked by the pandemic, saying the central bank was aware in advance that he would bring an end to emergency facilities.
“Powell and I speak multiple times a week. We would both characterize that we have an excellent relationship,” Mnuchin said in an interview Wednesday. Treasury and the Fed have been “incredibly coordinated on the execution of the Cares Act facilities,” he said, referring to the federal stimulus law.
Mnuchin’s comments come after the top two U.S. economic policy makers appeared to clash last week over whether to preserve emergency lending programs designed to shore up the economy.
Mnuchin released a letter to Powell last week demanding the return of money the government provided the central bank so it could lend to certain markets in times of stress. Minutes later, the Fed issued a statement urging that “the full suite” of emergency measures be maintained into 2021.
Democrats have accused Mnuchin of attempting to hamstring the ability of President-elect Joe Biden’s incoming administration to support the flagging economic recovery -- and even of breaking the law in now seeking to move unused funds into the Treasury’s general account.
Mnuchin and his department have denied any ulterior motives, saying it was just a matter of following the rules. The departing Treasury chief also insisted Wednesday there is no rift with the central bank.
“Powell and I had been speaking for weeks on this, it wasn’t a new or sudden issue,” he said. “I spent two weeks in the Senate and sat with Senate staff and drafted word by word by word. There is a clear date that is the expiration.”
The Cares Act states that “on December 31, 2020, the authority provided under this subtitle to make new loans, loan guarantees, or other investments shall terminate.” Republicans and Democrats are arguing over whether that refers to Treasury transfers of funds to the Fed or the Fed loan facilities themselves.
Powell, during a Nov. 5 press conference, indicated that he and Mnuchin were discussing the end of the programs, and said it would be a decision made “jointly” between the Fed and Treasury.
A Fed spokeswoman declined to comment further, but referred to Powell’s letter to Mnuchin last week, in which he told the Treasury chief: “Like you, I am pleased with all that we have accomplished together this year.”
Republican senators including Majority Leader Mitch McConnell and Pat Toomey have supported Mnuchin’s move to phase out the Fed facilities, backing his take that they were all along meant to be temporary initiatives.
Toomey and all other GOP members of the Senate Banking Committee wrote a letter Wednesday to Mnuchin and Powell applauding the duo for restoring liquidity in the face of turmoil-strewn markets. They said they “strongly” support Mnuchin’s shuttering of the facilities and the Fed’s decision to return the unused money.
House Speaker Nancy Pelosi on Friday accused the outgoing Trump team of wanting to “impede the ability of the administration to have everything available to them.”
Some experts say that Mnuchin could have extended the Cares Act-related emergency programs and still not violated the law.
The authority over the funds is for the Treasury, not the Fed, according to Peter Conti-Brown, a University of Pennsylvania Wharton School professor of legal studies. “The Fed’s authority to create these facilities comes from the Federal Reserve Act, not from the Cares Act,” he said.
Biden’s pick for Treasury, former Fed Chair Janet Yellen, is seen remaining flexible with her former colleagues at the Fed in restarting those facilities. But to do so in the wake of Mnuchin’s move, she would need authorization from Congress.
With corporate bond markets functioning well, that may not be a high priority, and fighting Senate Republicans on the programs could burn up both time and political capital.
Mnuchin worked across party lines in March to help swiftly pass the $2.2 trillion Cares Act in March as the government-induced economic shutdown was crumbling the U.S. economy.
The legislation authorized $500 billion for the Treasury Department for direct loans to companies in the airline sector, and to use as backstops for emergency lending facilities at the Fed. At the time, the coronavirus pandemic was expected to cause roughly two to three months of economic disruption, with its full impact unforeseen.
Mnuchin worked to quickly shovel hundreds of billions of dollars through loans to mom-and-pop companies, unemployment insurance and aid to state and local governments.
However Democrats said at the time they were worried that Mnuchin would use what they dubbed a “slush fund” with little oversight.
Now, Mnuchin noted, he is facing criticism for returning the unspent funds to Congress.
“The irony of this is, you have Democrats who couldn’t believe I was given what they said was a $500 billion blank check. It obviously wasn’t. But now that I’m being a good steward of the capital and following both the literal reading and the spirit of the law, I’m being criticized for being political,” Mnuchin said.
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