By Nick Timiraos and Paul Kiernan 

WASHINGTON -- Treasury Secretary Steven Mnuchin defended his decision to allow a suite of emergency lending programs to expire at the end of the year against criticism from Democrats who said he had misinterpreted the law that enabled them.

At a House oversight hearing on Wednesday, Mr. Mnuchin said the $2 trillion Cares Act pandemic relief bill that Congress approved on a bipartisan basis in March didn't allow him to extend five emergency loan programs. The Fed and Treasury had established those programs with some of the $454 billion Congress had made available in the law.

"This was not a political decision. I was merely implementing the Cares Act," Mr. Mnuchin said, echoing comments he made on Tuesday before the Senate Banking Committee.

Mr. Mnuchin also said that the programs weren't needed anymore and that the money he hadn't approved for the programs, as well as other funds that wouldn't be needed, would be better used on another pandemic relief bill.

Mr. Mnuchin said he had explained his reasoning and underscored that his decision wasn't politically motivated in a recent phone call with Janet Yellen, who is President-elect Joe Biden's nominee to serve as the next Treasury secretary. He said she didn't express an opinion during the call.

The Treasury Department's decision last month to allow loan backstops for corporate, municipal and other credit markets, as well as a program to support lending to small and midsize businesses and nonprofits, to expire on Dec. 31 touched off a partisan fight over whether and how the Biden administration should be allowed to use the programs.

Republicans defended Mr. Mnuchin's decision at Wednesday's hearing and complemented the Fed and Treasury in their crisis response.

Democrats see the programs as a potential tool for the Biden administration to deliver more aid to hard-hit businesses, cities and states if Congress doesn't act to approve more spending.

"There is simply no justifiable reason to take these tools away," said Rep. Maxine Waters (D., Calif.), chairwoman of the House Financial Services Committee, before which Mr. Mnuchin and Federal Reserve Chairman Jerome Powell appeared.

The Fed issued a rare objection to Treasury's decision last month, saying it would have preferred to extend the programs until the pandemic crisis had passed.

"We were concerned that the public might misinterpret [the Treasury's decision] as the Fed stepping back and thinking our work is done," Mr. Powell said on Wednesday before the same committee. "We needed to send a signal to the public to that effect."

Mr. Powell, who has a law degree, declined to say if the Fed agreed with the Treasury's reading of the law. "We don't have a role in reading it," he said.

Mr. Mnuchin also asked the Fed last month to return around $170 billion that the Treasury had previously committed, and Mr. Powell had said he would do so even though the Fed isn't legally obligated.

Democrats sparred with Mr. Mnuchin, who at times leafed through a large binder containing the Cares Act, over his legal interpretation. "You're claiming falsely...what the law says, and you've gotten into a disagreement with [Mr. Powell], who is actually a lawyer," said Rep. Katie Porter (D., Calif.).

Legislative proposals Republicans have made in recent months to rescind the lending programs in January 2021 wouldn't have been necessary if the Cares Act actually required what Mr. Mnuchin said it had, Ms. Waters said.

Separately, Mr. Powell said that despite the prospect that vaccinations could boost the economy by next spring, it was too soon for the Fed to consider pulling back its support. "We're not going to until we feel confident that it's no longer necessary," he said.

In addition to the emergency loan programs, the Fed this year has cut its short-term benchmark rate to near zero and is purchasing $120 billion a month in Treasury and mortgage-backed securities. The Fed believes that adding to its asset portfolio, or balance sheet, provides additional support to the economy when interest rates are pinned near zero.

"The time will come to start thinking about balance sheet issues," Mr. Powell said. "It's well into the future. We know how to do it, and that's slowly and carefully."

Write to Nick Timiraos at nick.timiraos@wsj.com and Paul Kiernan at paul.kiernan@wsj.com

(END) Dow Jones Newswires

December 02, 2020 13:47 ET (18:47 GMT)

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