Treasury Secretary Steven Mnuchin and Federal Reserve Chair Jerome Powell clashed over whether the U.S. should maintain emergency lending programs to support the economy. In a letter to Fed on Thursday, Mnuchin demanded a return of money the government provides the central bank so that it can lend to certain markets in distress. Fed responded, saying “the full suite” of measures be maintained into 2021.
- Treasury and Fed feud has raised concerns as both chiefs coordinate closely during a crisis to fund markets
- Mnuchin has maintained that many firms are no longer at risk of seizing up and do not need further aid beyond next month.
- Aid facilities could be reactivated if needed with either congressional support or with other funds from the Treasury-Mnuchin.
- On Tuesday, Powell said the time to discontinue the lending facilities was “not soon,” saying that the central bank typically keeps its backstops in place for some time after a crisis.
- The Treasury-Fed feud comes at a time, Republicans and Democrats are split on a new package and measures, with previous benefits set to expire next month.
- The U.S. Chamber of Commerce has called for a reconsideration of Mnuchin’s decision.
- Analysts project the market will now speculate the Fed may have to raise Treasury purchases and/or extend maturities of securities it buys through the main asset-purchase program
- President-elect Joe Biden’s administration could seek to renew the facilities or press Congress to authorize new funding for them in January.
Treasury-Fed split sent S&P 500 Index down 0.5% in early Friday trading in Europe. SPY is currently down 0.024% on the premarket.
