Make Kitco Your Homepage

Treasury's Fed funding clawback will not 'hamstring' new administration: official

Kitco News

WASHINGTON (Reuters) - U.S. Treasury Secretary Steven Mnuchin’s decision to claw back funds from Federal Reserve coronavirus lending programs will not “hamstring” the next Treasury secretary because the move will leave nearly $600 billion in cash that could quickly aid workers and businesses, a senior Treasury official said on Friday.

The official told Reuters in a phone interview that the Fed facilities will not be dissolved, and can be quickly recapitalized to a lending capacity of $750 billion to $800 billion with funds from Treasury’s Depression-era Exchange Stabilization Fund.

Mnuchin told Fed Chair Jerome Powell in a letter on Thursday that the $455 billion allocated to Treasury under the CARES Act last spring - much of it set aside to support Fed lending to businesses, nonprofits and local governments - should instead be available for Congress to reallocate. The Fed’s facilities, he said, “have clearly achieved their objective.”

The move has drawn criticism from Fed Chair Jerome Powell and Chicago Fed President Charles Evans that the Fed facilities, while little used, have provided an important backstop to financial markets and the economy.

But the Treasury official said that markets appear to be functioning well and are responding positively to prospects for quick approval of effective COVID-19 vaccines, and now more aid is needed for businesses and workers hit hard by the pandemic.

In addition to the $455 billion to be redirected, Mnuchin also wants to redeploy $130 billion in unallocated funds from the Paycheck Protection Program, which allowed small businesses to keep paying idled workers. The funds have already been borrowed by Treasury.

The Treasury official said it is up to Congress to determine the ultimate size of any package and how to redeploy the funds. Mnuchin is focused, the official said, on additional paycheck aid to idled workers, unemployment compensation and grants to help businesses that have been struggling amid COVID shutdowns, as many firms cannot take on more debt.

“We’ve left the secretary of the Treasury, the chairman of the Federal Reserve with $750-800 billion of firepower for these (lending) facilities,” the official said. “We’ve put into the Treasury that $600 billion of funds ready to be deployed directly into the economy to make the economy better. I don’t know that I’d call that hamstringing the new administration.”

Reporting by David Lawder; Editing by Steve Orlofsky

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.