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Federal Reserve To Wind Down Pandemic Programs After Rare Clash With Treasury

Federal Reserve Chairman Jerome Powell, left, and Treasury Secretary Steven Mnuchin bump elbows after concluding their testimony before Congress on June 30. The Fed and Treasury engaged in a rare clash over the fate of key pandemic lending programs.
Tasos Katopodis
Federal Reserve Chairman Jerome Powell, left, and Treasury Secretary Steven Mnuchin bump elbows after concluding their testimony before Congress on June 30. The Fed and Treasury engaged in a rare clash over the fate of key pandemic lending programs.

Updated at 6:27 p.m. ET

The Federal Reserve will comply with the Treasury Department's request to let key coronavirus emergency lending programs expire at the end of the year after the two agencies had earlier engaged in an unusual clash over the fate of the funds.

Fed Chairman Jerome Powell said in a letter to Treasury Secretary Steven Mnuchin late Friday that he would wind down the programs after both agencies had appeared at odds over the fate of the emergency funds of up to $454 billion.

Though largely unused, the availability of emergency funds was seen as vital in shoring up market confidence when Congress passed them in March in response to the pandemic.

The letter from Powell came in response to a request from Mnuchin a day earlier to wind down the programs. The Treasury secretary had argued the funds are no longer needed because they "have clearly achieved their objective."

The programs the Treasury requested to wind down include one that supports short-term debt issued by states and municipalities as well as one that lends to small and medium-size businesses.

But in a rare dissent Thursday, the Fed issued a statement noting 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 our still-strained and vulnerable economy."

Fed officials have been pushing for an extension of the programs. On Tuesday, Powell had argued in a virtual conference that the programs should be rolled over into 2021.

Democrats had also hoped the incoming administration of President-elect Joe Biden could use the funds to help fight the pandemic.

Powell and other Fed officials have frequently urged lawmakers for additional relief to fight the fallout from the pandemic. Congress has been unable to agree on another relief package because of disputes over the size.

The clash over the fate of the pandemic lending programs came amid a resurgence of coronavirus cases ahead of winter. As of Wednesday, more than 250,000 Americans have died from COVID-19, according to data compiled by Johns Hopkins University.

The resurgence of the virus is already forcing some states to reinstate lockdowns, which threaten to weaken the economy further.

Mnuchin's letter requesting that the programs be shut down was quickly criticized by business leaders, who have argued for more congressional action.

"We strongly urge these programs be extended for the foreseeable future and call on Congress to pass additional pandemic relief targeted at the American businesses, workers and industries that continue to suffer," Neil Bradley, executive vice president of the U.S. Chamber of Commerce, said in a statement.

"We all need to unite behind the need of a broad-based economic recovery," he added.

But some Republican lawmakers supported Mnuchin's request amid concerns Democrats could use the funds for other purposes.

"These temporary facilities helped to both normalize markets and produce record levels of liquidity. Congress's intent was clear: these facilities were to be temporary, to provide liquidity, and to cease operations by the end of 2020," GOP Sen. Pat Toomey of Pennsylvania tweeted on Friday.

"With liquidity restored, they should expire, as Congress intended and the law requires, by December 31, 2020," Toomey added.

In his letter Friday, Powell sounded a more conciliatory note, acknowledging Treasury had the authority to decide what to do with the emergency funds, while touting the agencies' work together in fighting the pandemic.

"Like you, I am pleased with all that we have accomplished together this year," Powell said in his letter to Mnuchin. "Our efforts helped to prevent severe disruptions in the financial system and unlocked trillions of dollars of private lending to households, businesses, and municipalities at a moment when the economy needed it most."

Copyright 2021 NPR. To see more, visit https://www.npr.org.

Jim Zarroli is an NPR correspondent based in New York. He covers economics and business news.