Mnuchin Defends Record of Close Coordination With Fed in Crisis

(Bloomberg) -- Treasury Secretary Steven Mnuchin said he has maintained close coordination with Federal Reserve Chair Jerome Powell throughout the economic downturn sparked by the pandemic, saying the central bank was aware in advance that he would bring an end to emergency facilities.

“Powell and I speak multiple times a week. We would both characterize that we have an excellent relationship,” Mnuchin said in an interview Wednesday. Treasury and the Fed have been “incredibly coordinated on the execution of the Cares Act facilities,” he said, referring to the federal stimulus law.

Mnuchin’s comments come after the top two U.S. economic policy makers appeared to clash last week over whether to preserve emergency lending programs designed to shore up the economy.

Mnuchin released a letter to Powell last week demanding the return of money the government provided the central bank so it could lend to certain markets in times of stress. Minutes later, the Fed issued a statement urging that “the full suite” of emergency measures be maintained into 2021.

But Mnuchin insisted Wednesday there is no rift, and that he is merely following the law.

“Powell and I had been speaking for weeks on this, it wasn’t a new or sudden issue,” he said. “I spent two weeks in the Senate and sat with Senate staff and drafted word by word by word. There is a clear date that is the expiration.”

The Cares Act states that “on December 31, 2020, the authority provided” to the Fed to “make new loans, loan guarantees, or other investments shall terminate.”

The Fed did not immediately respond to a request for comment.

Lawmakers’ reaction to Mnuchin’s announcement last week was split along party lines. Republican senators including Majority Leader Mitch McConnell and Pat Toomey supported the move, reiterating that Mnuchin was ending what were meant to be temporary initiatives.

House Speaker Nancy Pelosi has accused the Treasury chief of undermining the incoming Biden administration.

President-elect Joe Biden’s pick for Treasury, former Fed Chair Janet Yellen, is seen remaining flexible with her former colleagues at the Fed in restarting those facilities. But to do so in the wake of Mnuchin’s move, she would need authorization from Congress.

With corporate bond markets functioning well, that may not be a high priority, and fighting Senate Republicans on the programs could burn up both time and political capital.

Mnuchin worked across party lines in March to help swiftly pass the $2.2 trillion Cares Act in March as the government-induced economic shutdown was crumbling the U.S. economy.

The legislation authorized $500 billion for the Treasury Department for direct loans to companies in the airline sector, and to use as backstops for emergency lending facilities at the Fed. At the time, the coronavirus pandemic was expected to cause roughly two to three months of economic disruption, with its full impact unforeseen.

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Mnuchin worked to quickly shovel hundreds of billions of dollars through loans to mom-and-pop companies, unemployment insurance and aid to state and local governments.

Here’s Where $881 Billion in U.S. Aid Went in Month of Spending

However Democrats said at the time they were worried that Mnuchin would use what they dubbed a “slush fund” with little oversight.

Now, Mnuchin noted, he is facing criticism for returning the unspent funds to Congress.

“The irony of this is, you have Democrats who couldn’t believe I was given what they said was a $500 billion blank check. It obviously wasn’t. But now that I’m being a good steward of the capital and following both the literal reading and the spirit of the law, I’m being criticized for being political,” Mnuchin said.

©2020 Bloomberg L.P.