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The Mnuchin-Powell division shows rare discords such as economic struggles
(Bloomberg) – The two top US economic policymakers have clashed over whether to preserve emergency lending programs designed to support the economy – a rare moment of discord as the nation faces the risk of a new recession spurred by the resurgent coronavirus. It erupted late Thursday when outgoing Treasury Secretary Steven Mnuchin issued a letter to Federal Reserve Chairman Jerome Powell demanding the return of the money the government provides to the central bank so that it can lend to certain markets in times of stress. A few minutes later, the Fed released a statement urging that “the entire suite” of measures be maintained until 2021. “This is a significant and worrying breach at a critical time for the economy,” said Tony Fratto. , who worked on the Treasury and the White House during the George W. Bush administration. “We need all the government’s weapons to work together and instead we are seeing a complete collapse,” he said, noting that Washington remains at a dead end when it comes to fiscal stimulus. Investor reaction to the split was swift amid fears the decision will disrupt markets and prevent economic recovery: S&P 500 index futures fell 0.5% at the start of trading on Friday in Europe, with the a demand for paradise that made Treasury bonds rise and yields lower. and Fed presidents typically coordinate closely in times of crisis, jointly presenting themselves to Congress and working together to ensure that funding markets run smoothly. The two agencies were closely linked in the bailouts of the finance and auto industries more than a decade ago. And they joined again in the Cares Act economic bailout package of March 2020, which appropriated money for the government to fund Fed backstops for everything from municipal to corporate finance after markets folded when the pandemic has struck. many markets are no longer in danger of stalling and therefore need no further aid beyond next month. In its sights are structures that have tried to facilitate corporate credit and municipal debt and have also offered loans to small and medium-sized businesses. He asked that four more programs be continued for another 90 days. “Financial conditions are pretty good,” Mnuchin said in an interview. “The good news is that the markets have recovered significantly,” he said. Businesses don’t need more loans and instead require more grants, which requires action from Congress, said The Fed has argued that the lack of adoption of some programs is a sign that they have worked. that the purpose of his announcement was not to turn the Treasury against the Fed, and that he was simply enforcing the law prescribed by the Cares Act. The facilities could be reactivated if necessary with the support of Congress or other funds available to the Treasury, he said. said. “It looks like the Fed may read the legislation differently,” said Michael Feroli, US chief economist at JPMorgan Chase & Co Read More: Mnuchin wants to inject $ 580 billion into the US economic slowdown. divisions among major economic players undermine confidence at a time when growth is slowing. Dallas Fed Bank President Robert Kaplan told Bloomberg TV on Thursday that there is potential for gross domestic product to shrink this quarter and next.The economy is set to go fiscal-free: Republicans and Democrats get stuck on a new package, and measures including extended unemployment benefits will expire next month. “I was a little surprised” by the Treasury’s statement, Raphael Bostic, president of the Atlanta Fed Bank, told Bloomberg TV. “Given the position of the economy – and there is still so much uncertainty out there – it’s prudent to keep these things open so that when people, if they have stress, they can tap into it.” Read more: Year-end tax The cliffs are approaching for millions of Americans Among the initiatives that will now no longer be able to extend new credit are two Fed facilities that have allowed it to buy corporate bonds for the first time. They helped unlock that market, even before the effort was up and running, and companies have had record amounts of debt issuance ever since. Another, the Main Street Lending Program, got off to a slow start and the Fed recently relaxed its terms to help encourage banks and small businesses to participate. Powell himself said in a virtual conference Tuesday that the time to stop lending was “not soon,” noting that the central bank typically keeps its backstops in place for some time after a crisis. He has repeatedly praised the Cares Act for what it described as “essential” support amid the historic collapse of GDP in the spring. The US Chamber of Commerce has called for a reconsideration of Mnuchin’s decision. future and ask Congress to pass further pandemic relief measures targeting American businesses, workers and industries that continue to suffer, “the House said in a statement. The downfall of some of the facilities will now create expectations for the Fed. Some more political action when its next meeting concludes on Dec.16, said Ben Emons, chief executive of global macro strategy at Medley Global Advisors. “The market will now speculate that the Fed may need to increase Treasury and / or Treasury purchases. or extend the maturities. “of the securities it buys through its main asset purchase program, Emons wrote in a statement. President-elect Joe Biden’s administration may seek to renovate facilities, or press Congress to authorize new funding. for them, when he takes office in January Biden said Thursday he has made a decision on who to appoint and as treasury secretary. Republicans in Congress have said the billions of dollars sent to the central bank can be better used elsewhere. The Diiden Treasury could agree to restart structures, as Mnuchin pointed out, using the Exchange Stabilization Fund. But in the meantime, markets may have to contend with going “netless” for several weeks, Feroli wrote in a statement. “For about three weeks in January the markets will function without the support they have had since the spring,” Feroli wrote. (Update the markets in the fourth paragraph) For more articles like this, visit bloomberg.com Subscribe now to stay on top of the most trusted business news source. © 2020 Bloomberg LP
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