Mnuchin asks Fed to return $455 billion in unspent COVID-19 emergency funds

Treasury Secretary Steven Mnuchin on Thursday asked the Federal Reserve to shut down five emergency COVID-19 relief facilities and return $455 billion of unused funds, a move opposed by Fed Chairman Jerome Powell.

“I am requesting that the Federal Reserve return the unused funds to the Treasury. This will allow Congress to re-appropriate $455 billion, consisting of $429 billion in excess Treasury funds for the Federal Reserve facilities and $26 billion in unused Treasury direct loan funds,” Mnuchin wrote Powell in a letter.

In March, Congress approved $2.2 trillion of emergency relief in the CARES Act, which included $500 billion to set up a variety of emergency lending facilities through the Fed and guarantee loans. The swift actions helped calm nervous markets, but ultimately, only a small portion of the funds — $25 billion — were used.

But Powell says the programs, which are due to expire Dec. 31, remain necessary.

“The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy,” the central bank said in an unusually direct response to the letter. The Federal Reserve generally avoids weighing in on policy specifics in public.

On Tuesday, Powell said “I don’t think it is time yet, or very soon” to close down the programs, adding that the Fed was committed to “using all of our tools to support the recovery for as long as it takes until the job is well and truly done.”

He pointed to weakening data on spending and a slowdown of job growth, as well as a new surge of coronavirus cases, as evidence that additional support could be necessary.

While Mnuchin asked the Fed to extend four of the facilities for another 90 days — the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, the Money Market Liquidity Facility and the Paycheck Protection Program Liquidity Facility — he said another five should be shut down.

Those facilities included the Primary Market Corporate Credit Facility, the Secondary Market Corporate Credit Facility, the Municipal Liquidity Facility, the Main Street Lending Program and the Term Asset-Backed Security Loan Facility.

“In the unlikely event that it becomes necessary in the future to reestablish any of these facilities, the Federal Reserve can request approval from the Secretary of the Treasury,” Mnuchin said, adding that Treasury could use the previously existing Exchange Stabilization Fund in that situation.

Sen. Pat Toomey (R-Pa.), who was a key player in writing the financial portions of the CARES Act, applauded Mnuchin’s decision.

“Congress’s intent was clear: these facilities were to be temporary, to provide liquidity, and to cease operations by the end of 2020. With liquidity restored, they should expire, as Congress intended and the law requires, by December 31, 2020,” he said.

Bharat Ramamurti, a member of the Congressional Oversight Commission that oversees the CARES ACt funds and former advisor to Sen. Elizabeth Warren (D-Mass.), said the Fed had some power to hold onto $195 billion that Treasury had already committed, even if the programs shut down at year’s end.

He accused Mnuchin of keeping facilities more important to wall street open, while shuttering those oriented at municipalities.

“It really gives away the game that Secretary Mnuchin wants to extend the programs designed to protect Wall Street while ending the programs intended to help small businesses and state and local governments,” he tweeted.

Mnuchin’s request comes as the House and Senate exchange volleys over the size of a new relief bill, which Republicans say should be in the realm of $500 billion and Democrats say should exceed $2 trillion.

Mnuchin said the move would return $455 billion that the Treasury secretary said Congress could appropriate for other uses.

Updated at 6:01 p.m.