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Mr. Mnuchin announced the end of the Fed's lending programme

21 November 2020
2 min.
Mr. Mnuchin announced the end of the Fed's lending programme

Termination of the Fed lending programme

Dow Jones and the S&P 500 have declined following Steven Mnuchin's announcement that key lending programmes will expire on 31 December as most of the funding has not been used by businesses and should be available to Congress for redistribution.

The large $5.4 billion Fed lending programme to help corporations, medium sized businessess and local governments in the wake of the covid pandemic was approved by the Minister of Finance this spring and was funded from a large stimulus package approved by Congress.

However, since the programme's inception, the Municipal Liquidity Fund has provided loans of just $1.7 billion.

The Chairman of the Federal Reserve Jerome Powell also stated after the last meeting that these programmes should continue as they help stabilise financial markets and give the private sector confidence to continue lending.

Mnuchin wrote to Powell: "I call on FED to return to the treasury the funds that have not been used".

According to the Minister, programmes that supply money to key financial markets, including short-term corporate loans, will continue for a longer period of 90 days.

The Central Bank has given an official response that it does not agree with the White House decision, citing conditions of uncertainty unfavourable for U.S. business, high unemployment and the further slowdown in economic recovery that will follow.

House officials, including Jim Clyburn, chairman of the special committee on the pandemic crisis, said that Mnuchin had no reason to postpone the Fed's lending programmes in the midst of the crisis and called on him to reverse the decision.

At the same time, some Republicans in Congress took the side of their party representative, pointing to the imminent emergence of the vaccine and the need to cut costs. The U.S. Chamber of Commerce, a business lobby, criticized the decision to stop programmes as President-elect Joe Biden was about to enter the White House.

However, Mnuchin said that the decision to terminate the Fed's programmes was not intended to harm Biden, and unused funds to buy corporate bonds need to be diverted to help small businesses.

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