Trump’s Treasury Ends Fed CARES Act Pandemic Loans – Quartz

The Trump administration has asked the Federal Reserve to return $ 429 billion it received from Congress to support credit markets during the pandemic, and argued that the programs should end at the end of the year . News, detailed today in a letter Security Treasury Steven Mnuchin, could hurt economic recovery.

There is little reason to believe these programs are unnecessary: ​​New jobless claims started to climb again today, as coronavirus infections reach new heights, with deaths should follow suit. Most forecasters expect difficult conditions in the coming months.

“The Federal Reserve would prefer that all emergency facilities established during the coronavirus pandemic continue to play their important role in supporting our still strained and vulnerable economy,” the central bank said today in rare public disagreement with the Treasury. .

In his letter, Mnuchin argued that the Federal Reserve’s lending authority expired on December 31, citing his own role in drafting the law, known as the CARES law. Lawyers say the interpretation is overkill. Bharat Ramamurti, panelist appointed by Congress to oversee Fed loans, say what expires is the Treasury’s ability to provide additional funding to the central bank, not the power of the Fed to use what it has at hand.

The Fed has suggested in its statements that the law allows its pandemic relief programs to continue with the approval of the Secretary of the Treasury. Mnuchin’s attempt to end the program by blaming the law is seen by many Washington investors and observers also motivated by the Trump administration’s desire to wreak havoc for President-elect Joe Biden even though he refuses to recognize the former vice president’s victory in the election. Trump’s White House decision contrasts sharply with that of President George W. Bush ask Congress for additional relief funds at the request of President-elect Barack Obama during the 2008 financial crisis.

The central bank can still keep $ 195 billion of funds already authorized to support the facilities until the end of the year, according to Ramamurti. Biden may re-authorize CARES law funding for the central bank after his inauguration on Jan.20, but the nearly two-month gap could prove critical.

The Fed used the money it received from lawmakers to buy the debt of major US corporations. It has also provided loans to cities and small and medium-sized businesses too large to apply for pandemic rescue loans from the Small Business Administration. Only about $ 25 billion was actually used in transactions, but the Fed’s ability to deploy the rest of its financial firepower has given confidence to private lenders and borrowers.

Without these supports, more businesses would be likely to close and more workers would have lost their jobs. Despite this, unemployment remains high with 6.7% of Americans unable to find work. More than a third have been unemployed for six months or more, a group that increased by 1.2 million people last month, according to the Bureau of Labor Statistics.

As Mnuchin noted in his letter, market conditions have improved significantly since the March drop accompanying the coronavirus outbreak in the United States and Congress’s decision to grant the Fed and the Treasury powers to emergency loan. This law, the CARES law, also sent many Americans a check for $ 1,200 and increased unemployment benefits – some of which expires later this month.

In one interview with Bloomberg News, Mnuchin suggested that Congress use the money returned by the Fed to pay a new relief bill. Economists from all walks of life have called for another act to help Americans weather the pandemic safely without suffering long-term financial damage. Michael Strain, director of economic policy studies at the conservative American Enterprise Institute, argued earlier this week that Congress should approve $ 1 trillion in aid.

Attempts to do so earlier in the year were frustrated by Republicans’ reluctance to spend more than $ 500 billion. Other disagreements between the two sides concerned whether companies should be immunity from liability claims for coronavirus and democratic attempts to shoehorn a tax cut for high-income residents of high-tax states in the bill.

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