"COVID-19 Loans Ending This Year" US Treasury Chief Faces Direct Clash

Mnuchin's Letter to Powell on the 19th... "Some Loans Scheduled to End by Year-End"
Fed "Must Maintain All Emergency Resources"... 'Effectively Opposed'

Steven Mnuchin, U.S. Secretary of the Treasury, and Jerome Powell, Fed Chairman [Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Steven Mnuchin, the U.S. Secretary of the Treasury, and Jerome Powell, Chair of the Federal Reserve (Fed), clashed head-on over whether to extend the emergency pandemic loan programs introduced to mitigate the economic impact of COVID-19. Despite concerns about an economic downturn due to the resurgence of COVID-19, Secretary Mnuchin decided to terminate some of the programs by the end of this year, prompting immediate opposition from Chair Powell and the Fed.

If the loan programs are discontinued as per the Treasury's policy, it will be difficult to reinstate them, raising concerns that the incoming Biden administration's COVID-19 economic response could face greater challenges.

According to Bloomberg and other sources on the 19th (local time), Secretary Mnuchin sent a letter to Chair Powell requesting that some of the loan programs jointly operated by the Treasury and the Fed be terminated as scheduled on December 31 and that the remaining funds allocated to these programs be returned. The loans not to be extended include Main Street Lending, Term Asset-Backed Securities Loan Facility (TABSLF), Municipal Liquidity Facility (MLF), and Primary Market Corporate Credit Facility (PMCCF).

Secretary Mnuchin explained that these programs have "sufficiently achieved their goals" and that "banks have the capacity to meet the loan demand of businesses, municipalities, and nonprofit organizations." Earlier, Congress had decided in March to allocate $455 billion (approximately 506.8 trillion KRW) to these programs. The plan is to reallocate the remaining funds through Congress to where they are needed.

However, he proposed a 90-day extension beyond the December 31 maturity date for the Commercial Paper (CP) Purchase Facility, Primary Dealer Credit Facility, Money Market Mutual Fund Liquidity Facility (MMLF), and Paycheck Protection Program (PPP). This appears to reflect a judgment that some vulnerable credit areas need to be protected.

The Fed immediately expressed disappointment. In a statement, the Fed said, "The Fed believes that all emergency resources introduced to serve as a safety net for the difficult and vulnerable economy during the COVID-19 period should continue to be utilized," expressing dissatisfaction with Secretary Mnuchin's letter. Considering that Chair Powell said two days earlier on the 17th that it was not the right time to end emergency loan programs, this is interpreted as opposition to Secretary Mnuchin's decision to terminate some loans. At that time, Chair Powell said, "When the appropriate time comes, we will remove those tools," adding, "That time has not yet come and does not seem imminent."

However, since the loan programs for which Secretary Mnuchin requested extension or termination are jointly operated by the Treasury and the Fed, neither party can proceed unilaterally. Also, the return of funds requested from the Fed and the reassignment of their use cannot be carried out by the Treasury alone without the Fed's consent.

Local media interpret the Treasury's request as potentially placing a burden on the incoming Biden administration, which is pushing for large-scale economic stimulus measures. If the Fed returns unused funds to the Treasury, the incoming administration and the Democratic Party will no longer be able to restart the loan programs or use them again for economic stimulus. The New York Times (NYT) expressed concern that "the incoming Treasury Secretary's position to restart stimulus efforts could be narrowed."

Concerns that even existing support might disappear are expected to increase market uncertainty. Krishna Guha, Vice Chairman of financial advisory firm Evercore ISI, said that removing safety nets in the market has always been difficult and that doing so now is risky. He said, "If we are lucky, we will get through without serious damage, but if not, it will end with enormous costs." Foreign media also reported that the Fed might consider announcing an expansion of long-term bond purchases next month to respond to a recession. David Wessel, Director of the Hutchins Center at the Brookings Institution, pointed out that "there have been disagreements among economic leaders in the past, but they were rarely made public," calling this incident unusual.

Discussions on economic stimulus measures have begun to show signs of resuming in Congress. On the same day, staff members of the House and Senate leaders gathered in one place to exchange views on stimulus talks. Subsequently, Senate Majority Leader Chuck Schumer announced that Senate Minority Leader Mitch McConnell agreed to proceed with negotiations at the working-level stage. Although differences remain, it is interpreted that the stalled negotiations will resume.

This content was produced with the assistance of AI translation services.