The Trump administration is pulling the plug on emergency Federal Reserve lending programs set up to help the US weather the coronavirus shock, leading to fears it's pursuing a scorched-earth policy on its way out of power.
US Treasury Secretary Steven Mnuchin said he won't roll over several key powers that allow the Federal Reserve to operate lending programs, and asked it to return some US$455 billion in unused funding.
The programs "have clearly achieved their objective," Mnuchin wrote in his letter to the Federal Reserve. "Markets responded positively, spreads tightened, and banks continued lending."
Mnuchin said legislation intended the programs to expire on December 31, 2020.
"As such, I am requesting that the Federal Reserve return the unused funds to the Treasury."
President-elect Joe Biden will appoint a new Treasury secretary who will be able to reauthorise the programs, but this won't be doable until late January at the earliest. And since the seed money came from Congress - which is likely to be controlled by Republicans unlikely to approve of any big spend by Biden - he won't be able to reimplement the programs.
The announcement was applauded by Republican Senator Pat Toomey who was worried that by extending the programs they would become a substitute for the fiscal policy reserved for Congress and the president.
"I applaud Treasury Secretary Steven Mnuchin's decision to wind down, by year-end, the CARES Act's temporary, emergency lending facilities, as Congress intended and the law requires," Toomey said in a statement.
"These facilities, which were established in response to the unprecedented market turmoil caused by the COVID-19 pandemic earlier this year, have successfully achieved their intended purpose."
But the decision has been condemned by the incoming Biden administration, economists and business groups.
A spokesperson for President-elect Joe Biden called the move "deeply irresponsible".
"The Treasury Department's attempt to prematurely end support that could be used for small businesses across the country when they are facing the prospect of new shutdowns is deeply irresponsible," Kate Bedingfield said in a statement.
"At this fragile moment, as the COVID and economic crises are re-accelerating, we should be reinforcing the government's ability to respond and support the economy."
US Chamber of Commerce chief policy officer Neil Bradley said the announcement "prematurely and unnecessarily ties the hands of the incoming administration".
"American businesses and workers are weary of these political machinations when they are doing everything in their power to keep our economy going," he said.
And economists say the decision appears to be politically motivated.
"We are in a perilous moment for the economy," said Jason Furman, the former head of the White House Council of Economic Advisors.
"The most obvious interpretation is that the Trump administration is seeking to debilitate the economic recovery as much as possible on the way out of the door," said former Federal Reserve chief economist David Wilcox.
"Circumstances are very tenuous at the moment. If the situation unravels and really goes south this could prove to be a very damaging step. Secretary Mnuchin will go down in history as the man who took away a safety net when it was really needed," he added.
