US Treasury Secretary Steven Mnuchin on Thursday said he had declined to extend emergency lending facilities established with the Federal Reserve aimed at countering the coronavirus downturn.
The decision, which prompted a protest from the central bank, means the facilities aimed at the inner workings of the US financial system will expire at the end of the year.
"I was personally involved in drafting the relevant part of the legislation and believe the Congressional intent as outlined in Section 4029 was to have the authority to originate new loans or purchase new assets (either directly or indirectly) expire on December 31, 2020," Mnuchin said in a letter to Fed Chair Jerome Powell.
Minutes after Mnuchin's announcement, the Fed sent out its own statement, saying it "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."
As Covid-19 intensified in the United States in March, the Federal Reserve announced a slew of new lending facilities meant to stop financial markets from freezing up as the economy was disrupted by business shutdowns ordered to stop the virus's spread.
Some of these were backed by funds from the $2.2 trillion CARES Act authorised by Congress, including programs targeted at the corporate credit market, municipal lending and small and medium enterprises through the Main Street Lending Program.
These are the programs Mnuchin said would not be extended after the end of the year and requested that the Fed return $455 billion in unused funds allocated for them.
He did, however, approve 90-day extensions for four programs including those related to major financial institutions known as primary dealers, commercial paper, which finances things like auto loans and home mortgages, as well as the Paycheck Protection Program of loans and grants to small businesses.