Treasury Secretary Steven Mnuchin has raised the ire of the Federal Reserve by pulling the plug on several lending programs rolled out due to the COVID-19 pandemic. Mnuchin sent a letter to Fed Chairman Jerome Powell on Thursday asking the central bank to return unused funds that were earmarked for the pandemic-related lending programs.
Mnuchin pulls the plug on Fed lending programs
The $455 billion in unused funding is set to expire Dec. 31. Mnuchin is pulling the plug on the Fed lending programs early and said in the letter that Congress will then use the money for something else. The move forces the end of several programs designed to help struggling businesses during the pandemic.
The funds were set aside under the $2 trillion CARES Act in March. The money was used to provide loans and financial assistance to struggling companies. The stimulus package was aimed at propping up the weakened economy.
Mnuchin wrote that the Fed lending programs "have clearly achieved their objective." He said the markets "responded positively, spreads tightened, and banks continued lending."
Fed criticizes Mnuchin's move to end lending programs
According to CNN, the Fed usually doesn't comment on political issues of some sensitivity, but the central bank was quick to criticize Mnuchin's decision. The Fed issued a statement saying 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 a still-strained and vulnerable economy."
Powell also said earlier this week that it was too early to end the lending programs. He doesn't think the time to do so will be very soon, but he said that when it does, they will "put those tools away."
The U.S. Chamber of Commerce also issued a statement opposing the move, indicating that it puts corporate America at odds with the Trump administration. The Chamber of Commerce said the move "closes the door on important liquidity options for businesses at a time when they need them most" and "unnecessarily ties the hands of the incoming administration."
Investors were also troubled by Mnuchin's decision to scrap the lending programs. Dow futures declined 150 points, while S&P 500 futures also fell 0.5%, and Nasdaq futures declined 0.1%.
Mnuchin defends the move
The Treasury secretary also said in his letter to Powell that in the "unlikely event" that they needed to reestablish the programs at some point, the Fed can go back to him and request approval. Mnuchin defended his decision to end the Fed lending programs on CNBC.
In an interview with Jim Cramer for Squawk on the Street, he said they are "following the intent of Congress." He also said there were still a lot of money to help provide funds where needed. The programs that are being ended include purchases of corporate bonds, loans to state and local governments and the Main Street Lending Program aimed at small- and medium-sized businesses.
According to Mnuchin, there is still up to $800 billion in funds that could be deployed if necessary through the Exchange Stabilization Fund and other sources. However, he said it isn't necessary to buy more corporate bonds. He added that the "municipal market is working" and "people are able to borrow lots of money in the markets."