Democrats accuse Mnuchin of sabotaging economy in dispute with Fed

Top congressional Democrats are accusing Treasury Secretary Steven Mnuchin of sabotaging the U.S. economy and the federal government’s response to the coronavirus recession by closing down emergency lending facilities set up with the Federal Reserve.

A slew of Democratic committee chairs, members of House leadership and leaders on financial policy blasted Mnuchin for his Thursday decision to shut down programs meant to provide aid to struggling businesses and state and local governments. Mnuchin asked the Fed to return the money meant to backstop those efforts.

“It is clear that [President] Trump and Mnuchin are willing to spitefully destroy the economy and make it as difficult as possible for the incoming Biden Administration to turn this crisis around and lead the nation to a recovery,” House Financial Services Committee Chair Maxine Waters (D-Calif.) said in a Thursday night statement.

Sen. Sherrod Brown (Ohio), ranking Democrat on the Senate Banking Committee, echoed Waters and accused Mnuchin of hamstringing the Biden administration on his way out the door.

“There can be no doubt, the Trump administration and their congressional toadies are actively trying to tank the U.S. economy,” Brown said in a statement. “With this action, there can now be no doubt: Steven Mnuchin will go down as the worst Treasury Secretary in our nation’s history.”

Mnuchin prompted rage from Democrats and concern from some economists when he asked Fed Chair Jerome Powell on Thursday to return $455 billion in unspent credit protection for five emergency lending facilities he is planning to shut down. The money is part of a $500 billion allocation for Treasury and Fed emergency programs authorized by the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Mnuchin said that several of those facilities should be allowed to expire on Dec. 31, the deadline set out in the CARES Act, and the money should be returned to the Treasury for another potential coronavirus aid bill. He argued that the economy would no longer require the Main Street Lending Program for mid-sized businesses, the Municipal Liquidity Facility for state and local governments and three others meant to support corporate bonds and other investment markets in 2021.

“This is not a political issue. This is very simple,” Mnuchin said in a Friday morning interview with CNBC. “Markets should be very comfortable that we have plenty of capacity left.”

Several Republicans defended Mnuchin, saying the facilities he plans to close down accomplished their purpose of staving off a financial crisis and that his decision complies with the CARES Act.

“Returning the unused $455 billion to the Treasury allows those funds to be re-appropriated for other uses, such as reducing our national debt, or providing additional targeted relief to sectors of the economy most in need,” said Sen. Mike Crapo (R-Idaho), chairman of the Senate Banking Committee.

But Mnuchin’s request opened a rare public dispute between the Fed and Treasury, marking a notable break in Mnuchin and Powell’s close working relationship.

“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,” the Fed said in a statement.

Powell and several Fed officials said earlier this month the lending programs should be extended through 2021 as the U.S. faces a crushing third wave of coronavirus cases.

Mnuchin’s successor can reopen the emergency lending facilities he closed after they are confirmed as the next Treasury secretary. But if Powell returns the CARES Act funding, the Fed will be left with far less firepower if the economy needs further support in 2021.

“These programs are part of a comprehensive set of tools Congress gave the Federal Reserve to combat the pandemic-related economic crisis, and ending them in the midst of the crisis would undermine the economic recovery,” said Rep. James Clyburn (S.C.), the No. 3 House Democrat and chairman of the chamber’s select subcommittee on coronavirus response.

The U.S. Chamber of Commerce also condemned Mnuchin’s request in a Thursday night statement, saying it “prematurely and unnecessarily ties the hands of the incoming administration, and closes the door on important liquidity options for businesses at a time when they need them most.”