By Paul Kiernan and Andrew Duehren
WASHINGTON -- Treasury Secretary Steven Mnuchin on Friday defended his decision not to extend funding for several Federal Reserve lending facilities, calling on Congress to reappropriate the nearly $500 billion to help small businesses and unemployed workers.
The Treasury Department's announcement Thursday that it would allow the funding to expire after Dec. 31 prompted a rare statement of objection from the Fed, which wants to maintain the lending programs as a backstop in the face of the continuing coronavirus pandemic.
It also fueled speculation by some commentators that the Trump administration was attempting to constrain President-elect Joe Biden's ability to respond to the economic fallout from the pandemic as Covid-19 cases surge in the U.S.
"We're not trying to hinder anything," Mr. Mnuchin said in an interview Friday on CNBC. "It was very clear that the congressional intent is [that the money] expires on December [31] of this year. It's very clear in the law."
Fed lawyers and several lawmakers involved in drafting the Cares Act, which allocated $454 billion to support direct lending by the central bank to swaths of the economy, have expressed disagreement with that view or suggested the Treasury could have asked Congress to approve a reauthorization.
The Fed said Thursday that it "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."
Mr. Mnuchin played down that concern Friday and noted that the central bank will remain capable of supporting credit markets to the tune of some $800 billion using existing funds. "You know, all of the things being equal, the Fed always likes to keep their tools outstanding," he said.
He noted that programs created by the central bank since March to buy corporate bonds and lend directly to midsize companies and local governments used only a tiny fraction of their capacity. Policy makers have acknowledged that is partly because early iterations of the tools were too narrow and designed to limit credit risk.
Economists have also said the sectors of the economy hardest-hit by the pandemic -- including small businesses, restaurants and hotels -- need grants more than they need loans.
"We don't need to buy more corporate bonds," Mr. Mnuchin said. "We need this money to go help small businesses that are still closed or hurt, no fault of their own. Or people who are going to be on unemployment, and unemployment is running out."
Negotiations between the Trump administration, Senate Republicans and House Democrats over the terms of additional economic relief have been deadlocked for months. It isn't clear how or whether the Treasury Department's decision not to use the money Congress created in March would push lawmakers closer to a deal.
"We'll be redoubling our efforts to sit down and try to get something done," Mr. Mnuchin said.
The Treasury secretary spoke with White House chief of staff Mark Meadows and Senate Majority Leader Mitch McConnell (R., Ky.) on Friday. Mr. Mnuchin said on CNBC that they hoped "to come up with a plan to sit down with [House Speaker Nancy] Pelosi and [Senate Minority Leader Chuck] Schumer and try to get a targeted bill done for the people that really need it."
Mr. McConnell said Congress should use the untapped Federal Reserve funds for a coronavirus relief bill.
"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," he said Friday.
Mrs. Pelosi (D., Calif.) called Mr. Mnuchin's decision "another misguided act of irresponsibility," saying the action could imperil the next administration's ability to take steps to shore up the economy and instill confidence in the markets.
"They want to impede the ability of the next administration to have everything available to them," Mrs. Pelosi said Friday.
Before the election, Mr. Mnuchin led talks for Republicans in discussing a roughly $2 trillion package with Mrs. Pelosi. But Senate Republicans have repeatedly expressed opposition to a deal as large as the one Mr. Mnuchin discussed with Democrats. Mr. McConnell, who has taken the lead in negotiating on the GOP's behalf, has instead pointed to a roughly $650 billion Senate measure as the appropriate fiscal response.
The latest effort to pass a coronavirus-relief bill comes as lawmakers are also working to craft must-pass spending legislation before the end of Dec. 11. Lawmakers and aides see attaching coronavirus-relief measures to the spending bills as the most likely avenue for providing more aid this year.
Staff for the top four leaders in Congress -- Mr. McConnell, Mrs. Pelosi, Mr. Schumer (D., N.Y.) and House Minority Leader Kevin McCarthy (R., Calif.) -- met Thursday afternoon to discuss an agreement on spending. As part of that discussion, the staff also talked about possible coronavirus aid, according to Democratic aides.
In addition to Mr. Mnuchin's meeting with top Republicans on Friday, Mrs. Pelosi and Mr. Schumer are set to meet Friday with Mr. Biden, who has also called for a large relief bill this year.
Write to Paul Kiernan at paul.kiernan@wsj.com and Andrew Duehren at andrew.duehren@wsj.com
(END) Dow Jones Newswires
11-20-20 1647ET
