On The Money: Democrats accuse Mnuchin of sabotaging economy in dispute with Fed | Trump administration proposal takes aim at bank pledges to avoid fossil fuel financing | JPMorgan: Economy will shrink in first quarter due to COVID-19 spike
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THE BIG DEAL — Democrats accuse Mnuchin of sabotaging economy in dispute with Fed: Top congressional Democrats are accusing Treasury Secretary Steven MnuchinSteven Terner MnuchinGrassley, Wyden criticize Treasury guidance concerning PPP loans Mnuchin asks Fed to return 5 billion in unspent COVID-19 emergency funds We need a new COVID-19 stimulus package now MORE of sabotaging the U.S. economy and the federal government’s response to the coronavirus recession by closing down emergency lending facilities set up with the Federal Reserve.
- Mnuchin prompted rage from Democrats and concern from some economists when he asked Fed Chair Jerome Powell on Thursday to return $455 billion in unspent credit protection for five emergency lending facilities he is planning to shut down.
- The money is part of a $500 billion allocation for Treasury and Fed emergency programs authorized by the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act.
- Mnuchin said that several of those facilities should be allowed to expire on Dec. 31, the deadline set out in the CARES Act, and the money should be returned to the Treasury for another potential coronavirus aid bill.
The backlash: A slew of Democratic committee chairs, members of House leadership and leaders on financial policy blasted Mnuchin for his Thursday decision to shut down programs meant to provide aid to struggling businesses and state and local governments.
- “It is clear that [President] Trump and Mnuchin are willing to spitefully destroy the economy and make it as difficult as possible for the incoming Biden Administration to turn this crisis around and lead the nation to a recovery,” House Financial Services Committee Chair Maxine WatersMaxine Moore WatersMaxine Waters says Biden win is ‘dawn of a new progressive America’ Juan Williams: Too many men of color got conned by Trump Tlaib, Ocasio-Cortez offer bill to create national public banking system MORE (D-Calif.) said in a Thursday night statement.
- “There can be no doubt, the Trump administration and their congressional toadies are actively trying to tank the U.S. economy,” Sen. Sherrod BrownSherrod Campbell BrownMcSally, staff asked to break up maskless photo op inside Capitol Capitol’s COVID-19 spike could be bad Thanksgiving preview Lawmakers highlight housing affordability, struggling businesses in push for more COVID-19 aid MORE (Ohio), the ranking Democrat on the Senate Banking Committee, said in a statement.
- “These programs are part of a comprehensive set of tools Congress gave the Federal Reserve to combat the pandemic-related economic crisis, and ending them in the midst of the crisis would undermine the economic recovery,” said Rep. James Clyburn (S.C.), the No. 3 House Democrat and chairman of the chamber’s select subcommittee on coronavirus response.
Mnuchin’s response: “This is not a political issue. This is very simple,” Mnuchin said in a Friday morning interview with CNBC. “Markets should be very comfortable that we have plenty of capacity left.”
The Fed relents: Despite a rare statement disagreeing with Mnuchin’s decision, Powell told the secretary in a Friday letter that he will heed his request in compliance with federal law.
What it means: Mnuchin’s successor can reopen the emergency lending facilities he closed after they are confirmed as the next Treasury secretary. But when Powell returns the CARES Act funding, the Fed will be left with far less firepower if the economy needs further support in 2021.
LEADING THE DAY
Trump administration proposal takes aim at bank pledges to avoid fossil fuel financing: A new Trump administration proposal is taking aim at banks’ attempts to exclude certain fossil fuel activities including fossil exploration in the Arctic from financing.
The Office of the Comptroller of Currency, which proposed the new rule on Friday, states that decisions by banks to not serve a specific customer should be based on individual risks, rather than a categorical exclusion. The agency is billing the new rule as a measure to ensure fair access to financing.
“Fair access to financial services, credit, and capital are essential to our economy,” acting Comptroller of the Currency Brian Brooks said in a statement. “This proposed rule would ensure that banks meet their responsibility to provide their services fairly since they enjoy special privilege and powers because if the system fails to provide fairness to all, it cannot be a source of strength for any.”
The Hill’s Rachel Frazin breaks it down here.
JPMorgan: Economy will shrink in first quarter due to COVID-19 spike: The U.S. economy is set to shrink in the first quarter of 2021 as a result of the out-of-control spread of COVID-19, which is forcing state and local governments to reimpose restrictions, according to an analysis by JPMorgan Chase.
“This winter will be grim, and we believe the economy will contract again in 1Q, albeit at ‘only’ a 1.0% annualized rate,” the forecast headed by economist Michael Feroli found.
The current stage of the pandemic has seen case counts rise to record levels, averaging over 160,000 a day, well above the earliest peaks in March and April.
While early action from Congress helped prevent an even worse economic meltdown, the recovery has slowed as Congress has failed to pass further relief.
“By a wide margin, the course of the virus has been the most important factor shaping the outlook. But fiscal policy has been firmly in second place,” the report noted.
The Hill’s Niv Elis breaks it down here.
GOOD TO KNOW