Stocks Fall Slightly as Mnuchin Takes on Fed

U.S. stocks opened slightly lower on Friday after Treasury Secretary Steven Mnuchin pulled a plug on some pandemic lending programs implemented by the Federal Reserve.

In a letter sent to Fed Chair Jerome Powell, Mnuchin said that some support programs will not get extended past December 31. This move is likely to moderately limit the Fed’s ability to support the economy in case another major abruption takes place. 

“I am requesting that the Federal Reserve return the unused funds to the Treasury. This will allow Congress to re-appropriate $455 billion, consisting of $429 billion in excess Treasury funds for the Federal Reserve facilities and $26 billion in unused Treasury direct loan funds,” Mnuchin said.

In simple terms, Mnuchin asked the Fed to return unspent $429 billion to Congress. On the other hand, the Fed is understandably not happy with the decision. It is estimated that the bank has lent only $25 billion from the programs that are now set to expire on December 31.

“The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy,” it is said in Fed’s statement.

Overall, analysts aren’t expecting huge disruptions with this decision, which can also be seen by silent reactions from financial markets today. 

“Without the MLF (Municipal Liquidity Facility), the market won’t collapse, but it will lack some resilience if its tested by a selloff or more pronounced credit fears,” said Matt Fabian, partner at Municipal Market Analytics at Westport.

In the meantime, talks between Democrats and Republicans over a new stimulus package are expected to continue in coming weeks. 

“Last night, they’ve agreed to sit down and the staffs are going to sit down today or tomorrow to try to begin to see if we can get a real good Covid relief bill,” Senator Chuck Schumer said.

Mnuchin confirmed that he will meet the Democrats once he irons out a new proposal with senior GOP lawmakers. The two sides have reached a stalemate over a new stimulus bill in October.

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