The Day at a Glance | November 20 2020

The Top

· Mnuchin asks FED to return funds granted by the Treasury to finance emergency programs established during the pandemic.

· Recovery in international trade could be ephemeral amidst the new wave of the virus: WTO.

· Senator Chuck Schumer confirmed that starting today, negotiations for a new fiscal package in the US will resume.

Economic environment

In a letter sent yesterday, United States Secretary of the Treasury Steven Mnuchin asked Chair of the FED Jerome Powell to shut down some asset purchasing programs and some emergency loans approved in March. Mnuchin asked for the funds used to finance programs of buying corporate debt, municipal debt and loans to small and medium sized companies to be returned to the Treasury. Mnuchin suggests that the funds could be used more effectively in Congress, which plans to discuss new stimulus packages, as there is no demand for emergency programs on behalf of the FED. “The programs have clearly achieved their objectives”, assured the Secretary of the Treasury, pointing out that markets no longer face a risk. In any case, the programs could be reopened in the future, assured Mnuchin. However, the FED responded through a statement saying that the entirety of the programs are needed towards 2021. The emergency programs have been important to maintain order and optimism among markets through the pandemic; their withdrawal would leave debt markets vulnerable for at least the first three weeks of January. According to reports, Biden`s administration could resume the programs as soon as he takes office. President of the FED of Atlanta Raphael Bostic said he was surprised by the Treasury`s decision: “It`s prudent to keep those things open so that when people, if they do have stress, they can draw upon it”, he said in an interview. Meanwhile, Robert Kaplan, of the FED in Dallas, assured that the programs are necessary as the economy could re-enter a recession in the 4Q20 and 1Q21. Given these tensions, markets speculate that the FED`s quantitative easing programs could be increased in December in order to offset the closure of emergency programs; even though its members have reiterated that fiscal stimuli is more necessary than monetary.

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