Risks to the economic outlook have been rising recently because an array of benefits meant to blunt the economic downturn are scheduled to expire on Dec. 31. Those risks increased on Thursday when the Treasury Department told the Federal Reserve that it would not extend nine of the 13 liquidity and lending programs aimed at easing the effects of the pandemic.
Given the recent surge in coronavirus cases and the general slowing of the economy, the decision not to extend these programs beyond Dec. 31 is premature and puts at risk the small and middle market firms that may need access to capital to get through what is going to be the roughest winter in some time.
For example, the Treasury Department’s decision not to replenish the Paycheck Protection Program and to terminate the Main Street Lending Program is not in the interests of the American economy, and especially small and midsized businesses, given the expansion of the disease and a corresponding pullback in economic activity by the American people.
Middle market businesses report that they are positive about their prospects. However, with exponential increases in COVID-19 across the country and new orders being put in place to contain its spread, their fortunes could change quickly without fiscal aid.
While the economy has rebounded over the past few months, its condition remains strained. There is a need not only for another round of robust fiscal aid, but also for the guarantee of a significant economic and financial backstop in case the pandemic spins out of control this winter.
We agree with the Federal Reserve that the emergency facilities established during the pandemic serve as a backstop for a fragile economy until a safe and effective vaccine can be put into place.
We are encouraged that the Commercial Paper Funding Facility and the Money Market Mutual Fund Liquidity Facility are to remain open. But the closing of the Main Street Lending Program and the Municipal Liquidity Facility creates conditions for a policy error that will be paid for by small and middle market firms that populate Main Street.