Secretary Mnuchin takes heat during Senate hearing to wind up emergency loan program

Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell testified before the Senate Banking Committee on Tuesday, as lawmakers asked – in sometimes heated exchanges – why Mnuchin had announced an expiration date of December 31 for several emergency loan programs under the CARES Act.

The Treasury announcement sparked rare public dissent from the Fed, which said the programs were still needed “as support for our still strained and vulnerable economy.”

In his prepared remarks Tuesday, Mnuchin said Congress would need to use $ 455 billion of unused CARES law funds to pass another stimulus bill. This amount is a fraction of the $ 2.2 trillion stimulus package approved by the House of Representatives in September. It’s also about half the size of the aid package deployed on Tuesday by a bipartisan group made up mostly of moderates from both sides.

Luis D. Alvarado, an investment strategy analyst at the Wells Fargo Investment Institute, said it was not entirely correct to characterize the vast majority of these funds as unused, as Mnunchin did. “The markets realized that the Fed was backing everyone,” he said, adding that the speed and scale of the Fed’s intervention prevented further destabilization. “The mere effect that the Fed was going to create these emergency facilities practically did it for the markets.”

Banking Committee Chairman Senator Mike Crapo, R-Id., Said in his opening remarks that it was appropriate to end the programs at the end of the year, and the Republicans on the committee made extensive use of their opportunities. to ask questions to reiterate the Treasury’s decision. claim that Congress did not intend to extend these programs beyond 2020.

Senator Pat Toomey, R-Pa., Argued that the Fed’s emergency lending arrangements were specifically aimed at providing liquidity to markets. “We should not use them to transform ourselves into another objective,” he said, as a “complement or complement to fiscal policy”.

Mnuchin was pressed by Democratic senators for his claim that ordering the Fed to return unused emergency program funds to the Treasury was strictly a legal, and not an economic, move opposed to Sen. Bob Menendez, DN.J., on the technical basis of its decision to terminate the loan programs.

Senator Sherrod Brown, D-Oh., The top Democrat on the Banking Committee, rebuffed Crapo’s opening statement and Mnuchin’s prepared remarks, lambasting a “lack of political will” and wondering if the secretary was trying to “Sabotaging the economy” before the Trump administration hands over the reins to Biden’s team next month.

With the economic recovery slowing, the improving labor market slowing, and the prospect of a double wave of Covid-19 infections triggered by holiday gatherings, the central bank argued that even though Economic conditions have improved considerably since the beginning of the spring, the implementation of the programs gives lenders confidence that the markets will remain stable even as conditions worsen.

Dan North, chief economist, North America at Euler Hermes, said this reasoning made sense. “If you have it there, you will need to use it less. It’s a very good argument for leaving these things in place, ”he said, especially given the economic outlook for a potentially bleak winter for American consumers and businesses. “For now, I would really like to reduce the uncertainty and leave things in place,” North said.

While Powell sounded optimistic about the coming spring and summer, he also spoke about the importance of “crossing the chasm” of the post-pandemic economy, saying the fiscal stimulus gets the “share. lion’s credit ‘to stabilize the economy in the spring and resulting in a stronger-than-expected recovery.

The coming months will be crucial for the nation from both a public health and an economic perspective. At least that was a point of agreement for the two officials. Based on conversations with community bankers, Powell said, “What we’re hearing is that there are a lot of small businesses that are at risk of going bankrupt this winter.”

Responding to remarks from Sen. Tim Scott, RS.C., about the biggest hurdles faced by black and Hispanic small business owners, Mnuchin acknowledged that many are fast approaching an inflection point. “These small businesses can’t wait two or three months,” he says.

“My concern is, with the first round of closings, we’ve had so many permanent business closures,” North said. Many of the small businesses that managed to survive this spring will not make it to the next without a coordinated policy response, he warned.

“I think we’re going to dig into a much bigger hole,” North said. “I’m not a big fan of government spending or loose monetary policy, but if there ever was a time for it, it’s now.