Federal Reserve Chair Jerome Powell on Friday agreed to return unused coronavirus relief funds to the Treasury Department when its emergency lending programs shut down at the end of the year, as requested by Secretary Steven Mnuchin.
The emergency programs, which were set to expire Dec. 31 unless extended, will wind down after Mnuchin said Thursday evening that they were no longer needed, triggering a rare public statement from the central bank disagreeing with the move.
The Fed and Treasury have joint responsibility for designing and authorizing the programs, but it’s not clear that the central bank was obligated to comply with Mnuchin’s request to return the unused funds, wired by his department to the central bank.
Powell took no legal position on either that question or on Mnuchin’s assertion that the CARES Act did not allow for new loans to be made using funding it authorized after the end of the year, a claim that is disputed by Democrats who have called for the programs to be extended and expanded.
“You have indicated that the limits on your authority do not permit the CARES Act facilities to make new loans or purchase new assets after December 31, 2020, and you have requested that we return Treasury’s excess capital in the CARES Act facilities,” Powell wrote in a letter to Mnuchin. “We will work out arrangements with you for returning the unused portions of the funds allocated to the CARES Act facilities in connection with their year-end termination.”
A new Treasury secretary appointed by Joe Biden when he becomes president could restart the emergency programs, but without the CARES Act funding, the overall lending capacity would be much smaller.
Still, the Fed chief reiterated Mnuchin’s point that any Treasury chief would be able to use other rainy day funds under the control of the department if the programs were resumed.