Mnuchin, McConnell Want to Tap Unused Fed Funds for Stimulus

Mnuchin, McConnell Want to Tap Unused Fed Funds for Stimulus

Treasury Secretary Steven Mnuchin bid to revive stalled stimulus talks with congressional Democrats by proposing the use of untapped Federal Reserve relief funds as part of a new package of aid.

But Mnuchin’s plan to shutter a number of the Fed’s emergency-lending facilities ran into immediate opposition from Democrats. President-elect Joe Biden’s transition team slammed it as “deeply irresponsible,” and House Speaker Nancy Pelosi accused the Treasury secretary of trying to hobble the incoming administration.

(Many media outlets called the presidential election for Biden, who would take office Jan. 20. Trump is challenging the election results, alleging widespread fraud, and has not conceded.)

Mnuchin and Senate Majority Leader Mitch McConnell discussed the strategy Friday, in the first sign in weeks of possible movement on stimulus in the waning days of the Trump administration. Democrats and Republicans have to date had widely different views on the amount of fresh appropriations needed for Covid-19 relief.

McConnell backed Mnuchin’s proposal to use $580 billion that was allocated for Fed loan guarantees, small business help and other coronavirus-relief programs that remains unspent.

“Congress should repurpose this money toward the kinds of urgent, important and targeted relief measures that Republicans have been trying to pass for months, but which Democrats have repeatedly blocked with all-or-nothing demands,” McConnell said in a statement.

‘Disturbing Pattern’

The Fed said Friday it would comply with the Treasury Department’s request to return the unused funds that were meant to backstop five emergency lending programs that are expiring.

Biden transition spokeswoman Kate Bedingfield said ending the programs would remove a support for small businesses just as the virus is surging across the country and the economy continues to reel.

“We should be reinforcing the government’s ability to respond and support the economy — not undermining it,” Bedingfield said in a statement. “This follows a disturbing pattern of this administration putting petty grievances ahead of the health and safety of the American people.”

At a news conference earlier Friday, Pelosi cited the Fed’s “highly unusual” public dispute with Mnuchin over letting the emergency lending programs expire.“Again, why? Why? — Because they want to impede the ability of the administration to have everything available to them?” Pelosi said.

Talks between the Republicans and Democrats on stimulus have been stalled for months. Mnuchin said earlier Friday that he and McConnell wanted to “come up with a plan to sit down with Pelosi and Schumer and try to get a targeted bill done for the people that really need it, and hopefully the Democrats will work with us and hopefully that will get done.”

Pelosi and Senate Democratic leader Chuck Schumer this week wrote to McConnell asking him to return to the negotiating table on a stimulus bill, but so far have given no indication they’re willing to lower their demands for a $2.4 trillion bill.

McConnell has repeatedly said the starting point for talks should be the $500 billion measure backed by Senate Republicans, which would not provide direct $1,200 stimulus payments to individuals or aid to state and local governments.

One problem with Mnuchin’s approach is that the reclaimed Fed funds cannot be used to pay for other programs under congressional budget scoring conventions. The Congressional Budget Office assumes that loans will be repaid, so failing to offer the loans in the first place does not yield any measurable savings.

After three months of talks, Mnuchin and White House Chief of Staff Mark Meadows before the election offered to back a $1.9 trillion stimulus bill, which included direct payments, renewed supplemental unemployment insurance payments, and some state and local aid. Pelosi and Schumer rejected the plan as insufficient and said it lacked a way to combat the spread of the coronavirus, which has only become worse since then.

President Donald Trump said he’d support a large stimulus after the election no matter who won, but other than a single tweet last weekend has not so far engaged with Congress to push the matter.

On Thursday, aides to Pelosi, McConnell, Schumer and House Minority Leader Kevin McCarthy met to discuss a separate $1.4 trillion funding bill that’s needed to keep the federal government open after Dec. 11. Some lawmakers have suggested that virus relief could be added to that bill as time runs out before the congressional Christmas holiday. Congress returns to work from its Thanksgiving break on Nov. 30 and is expected to adjourn no later than Dec. 18.

McCarthy on Thursday complained to reporters that small businesses across the country are struggling, and facing further lock downs “with no help from Washington.” He called on House Democrats to join with Republicans in freeing up $138 billion for the Paycheck Protection Program, which could help small businesses keep staff on payrolls.

Biden has urged Congress to come together on a stimulus effort in 2020 rather than waiting for him to take office on Jan. 20. Biden and Vice President-elect Kamala Harris were set to meet in person on Friday with Pelosi and Schumer.

Mnuchin vs. Powell

Mnuchin’s latest move on the stimulus talks comes a day after he split with Fed Chairman Jerome Powell over whether to extend a number of emergency lending facilities into 2021.

The secretary on Thursday sent Powell a letter demanding the return of money the government provides the central bank so it can lend to certain markets in times of stress. Minutes later, the Fed issued a statement urging that “the full suite” of measures be maintained into 2021.

The 2020 Cares Act economic rescue package passed in March appropriated cash for the government to finance Fed backstops for everything from municipal to corporate finance after markets buckled when the pandemic hit. Mnuchin wants some of the money back, arguing that many markets are no longer at risk of seizing up and so don’t need further aid beyond next month.

© Copyright 2020 Bloomberg News. All rights reserved.