Rare Mnuchin-Powell spat takes center stage at COVID-19 hearing

A rare public break between Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell took center stage during a Senate hearing Tuesday as Republicans and Democrats sparred over the expiration of coronavirus relief.

Democrats were eager to exploit the fallout from Mnuchin’s recent decision to close $454 billion in Fed emergency lending facilities set up through the $2.2 trillion CARES Act, a move that elicited public criticism from Powell.

While the Fed initially disagreed with Mnuchin’s decision, Powell eventually relented and agreed to return the unused credit protections by Dec. 31 without endorsing the Treasury secretary’s decision.

Both Mnuchin and Powell sought to play down the divide before the Senate Banking Committee on Tuesday by deferring to each other’s authority and treading carefully around disagreements. Mnuchin insisted he was simply abiding by a statutory deadline to wind down certain programs by the end of the year, and Powell said the Fed did not dispute Mnuchin’s legal authority to make that call.

“Our thinking is that we would have left facilities in place to be backstops. We don’t question the secretary’s decision about the CARES Act money because that’s entirely his decision to make. But I think central banks generally would have done that,” Powell said.

But furious Democrats, who insist the lending facilities could be crucial if the third COVID-19 wave causes more financial turmoil, urged Powell to take a tougher stand against what they called a politically motivated decision to undermine the economy before Mnuchin departs on Jan. 20.

“My decision not to extend these facilities was not an economic decision,” Mnuchin told senators. “I find it implausible that any member of this committee believed that in voting for the CARES Act, you were authorizing me to invest $500 billion to make loans in perpetuity.”

Mnuchin’s defense did little to temper backlash from Senate Democrats.

“It looks like you and the president and others in the current administration are trying to spend your final days in office preemptively sabotaging the next administration’s efforts to clean up your mess,” said Sen. Sherrod Brown (Ohio), the panel’s ranking Democrat.

The dispute centers on a deadline set out in the CARES Act over what must be done with several lending facilities that were backed up with $454 billion in credit protection through the massive stimulus bill. The resulting law said the CARES Act-backed lending facilities cannot “make new loans, loan guarantees, or other investments” past Dec. 31.

Mnuchin and Republicans argue that the end-of-year deadline is legally binding. They also insist that the soon-to-be shuttered lending facilities have already served their purpose of stabilizing financial markets and encouraging private lenders to meet the needs of mid-sized businesses and local governments.

“The fact is, Congress trusted both of you with some extremely powerful, unprecedented emergency — and yet temporary — tools,” said Sen. Pat Toomey (Pa.), who is in line to serve as the Banking Committee’s top Republican next year.

“I commend you for working together to deploy those tools for their intended purposes and then putting them away now that that specific purpose has been achieved,” Toomey continued, partially quoting Powell’s frequent promise not to overuse programs intended for crises.

Democrats, however, argue the facilities can still modify or extend CARES Act-backed loans into next year and say there is no reason for Mnuchin to pull funding for those programs if his successor decides or needs to reopen them later on.

“No one will be better off when you end the CARES Act facilities,” said Sen. Bob Menendez (D-N.J.). “It’s important as an economic backstop.”

Powell had voiced support for extending the facilities before Mnuchin made his decision to close them.

The disagreement between Mnuchin and Powell marked a turning point in their otherwise close, crisis-tested relationship. The duo worked seamlessly together on a wide range of issues throughout the Trump administration, and their early rapport helped Powell earn Mnuchin’s recommendation to replace former Fed Chair Janet Yellen when her term expired in 2018.

Both Powell and Mnuchin on Tuesday spent more time praising each other for previous cooperation than lingering on the dispute over lending facilities during what will likely be their last joint appearance before a Senate committee. The two will testify before the House Financial Services Committee on Wednesday but are not expected to make any other congressional appearances together before President-elect Joe Biden begins his term.

Biden on Monday announced his intent to nominate Yellen as his Treasury secretary, and her prospects for confirmation appear to be solid. Powell’s term as Fed chair doesn’t expire until February 2022, meaning he will likely enjoy another close working relationship with his Treasury counterpart despite the change in administration.

Until then, both Powell and Mnuchin have insisted that congressional leaders strike a deal on another stimulus bill to support the hardest hit workers, businesses and households as the U.S. braces for a long and daunting winter with more coronavirus cases, hospitalizations and deaths.

“We can see the end. We just need to get there,” Powell said on Tuesday.

Tags Bob Menendez coronavirus relief COVID-19 economy emergency lending Janet Yellen Joe Biden Pandemic Pat Toomey Recession Sherrod Brown Steven Mnuchin

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