U.S. Treasury Secretary Steven Mnuchin’s decision to de-fund several Federal Reserve coronavirus lending programs on Dec. 31 is “deeply irresponsible,” President-elect Joe Biden’s transition team said on Friday, and threatens to undermine the country’s fragile economic state, Reuters informed.
Ending support for Fed programs that “could be used for small businesses across the country when they are facing the prospect of new shutdowns is deeply irresponsible,” Biden’s camp 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 – not undermining it.”
Mnuchin surprised Fed officials on Thursday by demanding the return of unused funds set aside to support Fed lending to businesses, nonprofits and local governments.
The United States faces a third wave of the coronavirus infection that has already killed 250,000, and states and cities are shutting down businesses and schools to stop the spread.
Mnuchin said that the surprise move would not bind the hands of the next Treasury secretary and that grants to firms, more paycheck aid to workers and unemployment compensation were better uses for the $455 billion in already borrowed funds.
The next administration would still have an $800 billion “bazooka” to quell financial market distress, he said.
Federal Reserve Chairman Jerome Powell and Chicago Federal Reserve Bank President Charles Evans have criticized the Treasury move, saying the programs due to lapse – while little used – provided an important backstop for the economy. They include the Main Street Lending Facility for mid-size businesses, a municipal bond facility and others supporting corporate credit and asset backed securities markets.
“I think that backstop role may be quite important for quite some time so it’s disappointing,” Evans said on CNBC. “The virus spread is increasing and so there are risks from that … it would be good to have more support coming from all directions.”
Powell said in a letter to Mnuchin later on Friday that the Treasury chief had “sole authority” over the facilities’ futures and said he would make arrangements to return unused funds to the Treasury.