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Politics Fed, Treasury emergency lending facilities divide lawmakers on state of the economic recovery

23:35  01 december  2020
23:35  01 december  2020 Source:   washingtonpost.com

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After instructing the Fed to let most of its emergency lending facilities expire, the Treasury is now Twelve of the Fed ’s 13 liquidity facilities were already scheduled to expire on December 31, many of which The investment board of Wisconsin’s state pension sold Bank of America, Wells Fargo, and

Under the TALF, the Federal Reserve will lend on a non-recourse basis to holders of certain AAA-rated ABS backed by newly and recently originated consumer and small business loans. The Federal Reserve will lend an amount equal to the market value of the ABS less a haircut and will be secured

Lawmakers debated the emergency lending facilities run by the Federal Reserve and Treasury Department at a Senate Banking Committee hearing Tuesday, revealing diverging opinions on the state of the recovery and how to keep it going.

a man wearing a suit and tie holding a glass of wine: Federal Reserve Chair Jerome H. Powell, right, testifies before the Senate Banking Committee on Capitol Hill in Washington, Tuesday, Dec. 1, 2020, during a hearing on, 'The Quarterly Cares Act Report to Congress.' Treasury Secretary Steven Mnuchin, left, also testified. (AP Photo/Susan Walsh, Pool) © Susan Walsh/AP Federal Reserve Chair Jerome H. Powell, right, testifies before the Senate Banking Committee on Capitol Hill in Washington, Tuesday, Dec. 1, 2020, during a hearing on, 'The Quarterly Cares Act Report to Congress.' Treasury Secretary Steven Mnuchin, left, also testified. (AP Photo/Susan Walsh, Pool)

Treasury Secretary Steven Mnuchin testified before the panel on Tuesday, giving a strong defense of his decision not to extend the programs beyond the end of the year. Mnuchin said the programs had done their jobs and that hundreds of billions of dollars put toward the facilities would be better spent elsewhere. Fed Chair Jerome H. Powell, meanwhile, said that “we would have left the facilities in place to be backstops” and continued to push for more help from Congress.

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The chair of the Federal Reserve and the secretary of the Treasury painted starkly different visions of the challenges facing the United States Mr. Mnuchin announced in November that he would end several Fed emergency loan programs, which are meant to keep credit flowing to state and local

Economy | Fed Unveils Emergency Lending Programs as Companies Struggle to Raise Cash. Jerome H. Powell, the chair of the Federal Reserve , which has taken several steps to keep the economy and financial markets functioning.Credit Erin Schaff/The New York Times.

Support for the emergency lending facilities set up at the start of the pandemic has waned among Republicans who say it’s time to phase out the programs. By contrast, Democrats say cutting them off too soon jeopardizes the economic recovery.

Disputes around programs became especially charged last month when Mnuchin said he would not extend most of the programs beyond the end of the year. Mnuchin also requested that the Fed return hundreds of billions of dollars that had been put toward the facilities but never spent, saying the money could be reallocated by Congress to directly reach distressed parts of the economy.

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The announcement spurred a rare public clash between Treasury and the Fed, which wanted the programs to stay in place to continue backstopping the markets in case the recovery faltered. Democrats and several economists condemned Mnuchin’s move saying it was premature to cut off the extra support. Biden’s transition team called the decision “deeply irresponsible."

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The Federal Reserve will disclose the names of borrowers from several of its emergency lending Lawmakers from both parties had been pressing the Fed to spell out which companies were As part of the Cares Act signed into law late last month, the Fed established programs aimed at lending to

Nonresident Fellow - Economic Studies, The Brookings Institution. The Fed has suggested that Treasury investment is necessary because the Fed cannot lose money on its To be very clear: Nowhere in any part of the Federal Reserve Act does Fed lending require Treasury participation

At the hearing, Mnuchin said his decision to end the programs at the end of the year reflects a legal interpretation of the Cares Act, adding the programs were never meant to be in place indefinitely. Despite the initial rebuke, the Fed has agreed to return the unused money and is in the process of doing so.

“My decision not to extend these facilities was not an economic decision,” Mnuchin said Tuesday. He also dismissed criticism from the left that the move was politically motivated.

Republicans on the banking panel echoed Mnuchin, saying financial markets have healed since a tailspin in February and March. Sen. Patrick J. Toomey (R-Pa.), a top Republican on the panel, said the programs were designed for a specific purpose in the pandemic’s early days, and that they should not be thought of as an evergreen supplement to fiscal policy.

“It’s always been the case that you could imagine some bad thing happening in the future, if some terrible thing were to happen to threaten the viability of our financial markets," Toomey said. “There are some industries that are in big trouble. That is a true fact...It’s up to Congress to decide what to do about that."

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  Mnuchin Defends Work With Fed as Democrats Fault Funds Shift 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.

US Treasury Secretary Steven Mnuchin on Thursday said he had declined to extend emergency lending facilities established with the Federal Reserve aimed “We are in a perilous moment for the economy ,” said Jason Furman, the former head of the White House Council of Economic Advisors.

On November 19, 2020, Treasury Secretary Steven Mnuchin asked the Federal Reserve to extend several emergency - lending facilities , but to end Consultant - Economic Studies, The Brookings Institution. Former Assistant to the Board - Board of Governors of the Federal Reserve System .

Treasury Secretary Mnuchin cuts off several Federal Reserve emergency aid programs, sparking unusual rebuke from Fed

The emergency programs that targeted small businesses and local governments have issued few loans, drawing criticism around those programs’ usefulness. Some economists have pushed the Fed and Treasury to loosen the lending terms and expand the programs’ reach. Fed officials have said the Main Street lending program, for example, could see more interest if businesses continue to struggle through the winter.

The programs only allow the Fed to lend money, with the expectation that those loans are repaid, while Congress can issue grants or direct payments through a stimulus package.

During the hearing, Senate Democrats said the programs should not be cut off.

Sen. Sherrod Brown (D-Ohio), the top Democrat on the panel, said Mnuchin was "trying to sabotage our economy on your way out the door.” Sen. Robert Menendez (D-N.J.) told Mnuchin at the hearing that “no one will be better off when you end the Cares Act facilities.”

“There is a choice here, and unfortunately the choice you’re making is very consequential," Menendez said.

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The recovery picked up speed faster than many economists expected, with unemployment falling to 6.9 percent in October. But there are mounting fears that a wintertime surge in coronavirus cases, plus uncertainty around another stimulus package, will claw back that momentum. Powell said the pace of improvement has moderated over the past few months, with spending on services like travel and hospitality remaining low.

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“We can both acknowledge the progress and point out just how far we have left to go. The lion’s share of the credit should go to fiscal policy," Powell said Tuesday.

In the backdrop are ongoing questions of whether Congress and the White House will reach a deal on another stimulus package. Powell has long maintained that fiscal support will be needed to keep the recovery on track, and Mnuchin has called for a targeted relief bill to fill the economy’s lingering gaps.

Negotiations around another stimulus package have broken apart multiple times. On Tuesday, a bipartisan group of senators unveiled a roughly $908 billion stimulus proposal that includes $300 weekly unemployment benefit lasting four months as well as $160 billion in funding for state and local governments.

The package would also include a temporary moratorium on some coronavirus-related lawsuits against firms and other entities and funding for small businesses, schools, health care, transit authorities, and student loans. Still, much remained in flux, and many congressional aides were skeptical the plan will become law.

Asked at Tuesday’s hearing about the proposal, Mnuchin reiterated that more help from Congress was needed and said he looked forward to reviewing the pitch.

“I think what’s more important is what we can pass quickly on a bipartisan basis to target the most difficult parts of the economy," Mnuchin said.

When it comes to the government’s economic response, Powell said there is less of a risk to “overdoing it” than there is to “underdoing it.” With encouraging news about a vaccine, Powell said that many businesses and households can “see the light at the end of the tunnel...but they may need more help to get to that place.”

“We can see the end. We just need to get there," he said.

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