Published: Fri, November 20, 2020
Economy | By

Gold dips as Mnuchin stems Fed's pandemic lending program

Gold dips as Mnuchin stems Fed's pandemic lending program

Gold prices fell on Friday, weighed by uncertainty over more US stimulus measures after Treasury Secretary Steven Mnuchin said key pandemic lending programs at the Federal Reserve would expire by the end of the year.

He said this would allow Congress to re-appropriate $455 billion to other coronavirus programs.

Mnuchin said the programs are no longer needed, but the move goes against the Fed's desire to keep them going, according to a statement from the central bank, in a rare show of public disagreement between the two government agencies.

In its response, the Fed said that 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". This reduces the Fed's ability to support the financial system.

Fed Chair Jerome Powell said on Tuesday the central bank was committed to using all its tools to drive an economic recovery.

U.S. Treasury Secretary Steven Mnuchin briefs reporters on President Donald Trump's newly signed executive order imposing new sanctions on Iran, at the White House on June 24, 2019 in Washington, DC.

S&P 500 futures slipped by 0.5 percent while Dow futures fell by 0.6 percent, canceling out a firmer lead from a strong Wall Street session overnight.

Mnuchin also asked that the Fed approve a 90-day extension of the Commercial Paper Funding Facility, the Money Market Mutual Fund Liquidity Facility, the Primary Dealer Credit Facility and the Paycheck Protection Program Liquidity Facility, all of which were funded without CARES Act appropriations.

But Fed officials have emphasized in recent days that the broad economy is not yet out of the woods, with the pandemic spreading, millions unemployed and important business sectors suffering Depression-level downturns.

The programs, particularly the "Main Street" and local government landing programs, raised the prospect of trillions of dollars in central bank credit flooding into an economy that had been partially shut down in the spring because of the pandemic.

"We only have $25 billion in loans outstanding". The Municipal Liquidity Facility had only issued about US$1.7 billion in loans. Fed Gov. Lael Brainard is rumored to be among the leading candidates. Republicans and Democrats have been deadlocked for months on approval of another round of coronavirus support measures.

A senior Democratic aide told Reuters there had been a mid-afternoon meeting on Thursday among congressional aides that discussed coronavirus relief and efforts to pass a $1.4 trillion bill to keep government agencies operating beyond December 11 when current funding expires.

"These facilities. have successfully achieved their intended goal", he said.

"The liquidity and capital position of US banks ensure that they can fulfill the financing requirements of their customers", Mnuchin wrote in the letter.

"This is a distressing development that injects uncertainty and instability into markets completely unnecessarily".

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