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Treasury Secretary Steven Mnuchin said he only obeyed the law, but Democratic senators saw something more sinister at play as he sought to explain his recent decision to end some loan programs that the Federal Reserve was using it to push the economy through the coronavirus pandemic.
“You seem to be trying to sabotage our economy by stepping out the door,” Sen. Sherrod Brown, D-Ohio, said at a hearing Tuesday. “There is no legitimate justification for this.”
Mnuchin, however, told a different story, citing parts of the law that said he did not have the authority on his own to allow the programs in question to take place after the end of the year.
“My actions are not economical,” he said towards the end of the hearing. “This is purely my interpretation of the law.”
These are a series of facilities that the Fed has used to lend money to small and medium-sized businesses as well as state and local governments, and two in which it has bought corporate bonds. Authority for the programs came from the $ 2.2 trillion CARES law passed in March, at the very onset of a pandemic that would cause the biggest quarterly decline in economic activity since at least the Great Depression, followed of the strongest rebound.
Most of the facilities have been little used, with only a fraction of the estimated $ 2 trillion in potential cash used.
Still, Fed officials say the initiatives are vital for policing the market and as support if the economy were to run into trouble like it did more than eight months ago.
“It is premature to withdraw support for the economy,” said Fed Chairman Jerome Powell, who joined Mnuchin at the hearing, which is required by bailout legislation.
Powell and Mnuchin have worked closely on the bailout funding plan, but are on opposing sides on whether the funding should continue. Mnuchin said the remaining $ 455 billion should be returned to the treasury and deployed for direct injections of liquidity to the economy.
The two had a more conciliatory tone during the hearing.
Mnuchin said he wanted to “thank President Powell for being a great partner in everything we’ve done.” Powell later noted that “we’ve done a lot and really enjoyed the working relationship we’ve had with Treasury on the facilities.” However, he noted that “we think we would have left the facilities in place to serve as reinforcements.”
Divergent political views
Both parties had their lawyers.
New Jersey Democratic Senator Robert Menendez took issue with Mnuchin’s insistence that he was simply complying with Congress’ mandate by ending loan facilities on December 31.
“No one will be in a better situation after the CARES law installations end,” Menendez said. “As we enter a third wave of Covid, I think ending these installations is not mandated by law. It is important as economic support. It will have real and detrimental consequences on our recovery, on our businesses, on American workers. “
“Congress can re-authorize this money if you want to extend it, but I think these small businesses need the grants,” Mnuchin replied.
Across the aisle, Sen. Pat Toomey, R-Pa., Who had been pushing for the end of the programs even before Mnuchin made his announcement, pointed out that the markets have been performing well since the decision.
“If something terrible were to happen to threaten the viability of our financial markets, then the Treasury and the Fed could come back to Congress and ask for the appropriate facilities at that time,” Toomey said. “It’s up to Congress to decide what to do about it. It’s not for the Fed to lend money to possibly insolvent companies.”
As the hearing progressed, a bipartisan group of lawmakers announced a deal on a $ 908 billion stimulus package aimed at helping displaced businesses and workers as well as funding spending on vaccines and other areas. Later that day, Senate Majority Leader Mitch McConnell rejected the proposal.
Powell said that even the Fed’s lending powers can only go so far and Congress will have to do more for an economy he says is improving but whose outlook is “extraordinarily uncertain.” He said on Tuesday that the majority of the credit for the economic expansion should go to fiscal actions, but added that the Fed will also continue to deploy its tools if necessary, even without the funding from CARES.
“The fact that the economy was in very good shape at the start of the pandemic, maybe that is one of the reasons it recovered faster than we thought and somehow continued to challenge expectations, ”he said. “There are parts of the economy that are really in need of help or may need help putting in place that last span of the bridge and getting to the other side of the pandemic.”
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