U.S. Treasury, Federal Reserve Lock Horns Over COVID Programs

On top of the fiscal stimulus impasse in Washington, coordination between the White House and Federal Reserve is also breaking down during one of the most critical times in American history.

Yesterday U.S. Treasury Secretary Steven Mnuchin wrote a letter to Fed Chair Jerome Powell asking the central bank to return the unused funds allocated for five emergency programs under the CARES Act. The Trump administration intends for these programs to expire at the end of the year and said in "the unlikely event" they need to be brought back, the funds can be requested. The measures concerned include:

• Primary Market Corporate Credit Facility (PMCCF)
• Secondary Market Corporate Credit Facility (SMCCF)
• Municipal Liquidity Facility (MLF)
• Main Street Lending Program (MSLP)
• Term Asset-Backed Securities Loan Facility (TALF)

"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," wrote Mnuchin in a statement. He added the use of these facilities has been "limited" and detailed signs financial conditions have improved to where they are not needed. The Treasury, however, wants a 90-day extension for the four pandemic lending programs that do not use CARES Act funding, including the Commercial Paper Funding Facility (CPFF), the Primary Dealer Credit Facility (PDCF), the Money Market Liquidity Facility (MMLF) and the Paycheck Protection Program Liquidity Facility (PPPLF).

Powell has been repeating the need for adequate support during the pandemic, and, as expected, the response from the central bank reflected this. It said, "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."