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Mnuchin moves to cut off Fed pandemic emergency lending program

David Brancaccio, Meredith Garretson, Erika Soderstrom, and Alex Schroeder Nov 20, 2020
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Treasury Secretary Steven Mnuchin and Federal Reserve Board Chair Jerome Powell testify during a Senate Banking Committee hearing on Capitol Hill on Sept. 24, 2020 in Washington. Drew Angerer/Getty Images
COVID-19

Mnuchin moves to cut off Fed pandemic emergency lending program

David Brancaccio, Meredith Garretson, Erika Soderstrom, and Alex Schroeder Nov 20, 2020
Heard on:
Treasury Secretary Steven Mnuchin and Federal Reserve Board Chair Jerome Powell testify during a Senate Banking Committee hearing on Capitol Hill on Sept. 24, 2020 in Washington. Drew Angerer/Getty Images
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Two days after Federal Reserve Chair Jerome Powell urged the Trump administration to keep a pandemic relief program at the ready, U.S. Treasury Secretary Steven Mnuchin said its time for the central bank to end the program and turn unused taxpayer funds back over to the treasury.

This is about ending two programs to underpin corporate bonds and municipal debt, and another that makes borrowing easier for mid-sized businesses. Karen Petrou, managing partner of the Washington-based economic consulting firm Federal Financial Analytics, has more on this. The following is an edited transcript of her conversation with “Marketplace Morning Report” host David Brancaccio.

David Brancaccio: So what is going on here? Is this a difference of opinion among reasonable people about when to ratchet back on some stimulus?

Karen Petrou: In part, it’s a difference of opinion between reasonable people on that, as well as on a much, I think, more important question, buried in some of the accusations, which is what is the role of the Fed. Programs like the municipal bond program and the Main Street Lending Program have not worked, in part because the Fed is a central bank. And when you demand that it take on fiscal government tasks like saving a sector, it does that very carefully, and, frankly, very badly. These are properly functions that Congress should dictate. And if we want to spend lots more money rescuing sectors — and I think in particular it’s for state and local governments — we have to do that. Congress should be doing that. All of these facilities were half-baked solutions to try to get around Congress’s inability to make up its mind.

Brancaccio: But we live in a time when economists like yourself are crying out for more federal stimulus, this might imply less. So do you stand on the side of the Fed on this particular dispute?

Petrou: Yes and no. I agree with the Fed that, particularly given the awful pandemic news we’re getting, the economy is going to need rescuing. The fact is none of these Fed programs, at least the ones that Treasury is targeting, has worked. And they haven’t worked well because of the uncomfortable square peg-round hole challenge of getting the Fed to do the Treasury’s and the federal government’s bidding.

Now, in the absence of a functioning Congress, I think the Fed still needs the facilities. But it would be a lot better if Congress would take back and use the $455 billion the Treasury wants to give it to make up its own mind and do a much more effective rescue for state and local governments. The Fed will always do a bad job because the Fed isn’t the Treasury. It’s supposed to be the central bank.

COVID-19 Economy FAQs

Can businesses deny you entry if you don’t have a vaccine passport?

As more Americans get vaccinated against COVID-19 and the economy begins reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.

Give me a snapshot of the labor market in the U.S.

U.S. job openings in February increased more than expected, according to the Labor Department. Also, the economy added over 900,000 jobs in March. For all of the good jobs news recently, there are still nearly 10 million people who are out of work, and more than 4 million of them have been unemployed for six months or longer. “So we still have a very long way to go until we get a full recovery,” said Elise Gould with the Economic Policy Institute. She said the industries that have the furthest to go are the ones you’d expect: “leisure and hospitality, accommodations, food services, restaurants” and the public sector, especially in education.

What do I need to know about tax season this year?

Glad you asked! We have a whole separate FAQ section on that. Some quick hits: The deadline has been extended from April 15 to May 17 for individuals. Also, millions of people received unemployment benefits in 2020 — up to $10,200 of which will now be tax-free for those with an adjusted gross income of less than $150,000. And, for those who filed before the American Rescue Plan passed, simply put, you do not need to file an amended return at the moment. Find answers to the rest of your questions here.

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