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UPDATE 1-Mnuchin says Main Street U.S. companies need grants, not loans

(Adds quotes, context)

WASHINGTON, Nov 20 (Reuters) - U.S. Treasury Secretary Steven Mnuchin on Friday defended his decision to end several of the Federal Reserve’s key pandemic lending programs on Dec. 31, saying Congress should use the money to help small U.S. companies with grants instead.

Federal Reserve Chairman Jerome Powell and Chicago Federal Reserve Bank President Charles Evans have criticized the Treasury move, saying the programs - while not being used extensively - provided an important backstop for the economy.

Mnuchin told Powell in a letter Thursday that the $455 billion allocated to Treasury under the CARES Act last spring, much of it set aside to support Fed lending to businesses, nonprofits and local governments, should be made available for Congress to reallocate.

Speaking on CNBC, Mnuchin said Congress had always intended for the lending programs to end on Dec. 31, and sought to reassure markets that the Fed and Treasury had many tools left to support the economy.

“Markets should be very comfortable that we have plenty of capacity left,” Mnuchin said, adding that the Treasury could reactivate the facilities by tapping the Exchange Stabilization Fund, a seldom-used fund housed at the department.

“To the extent these need to be reactivated, we have over $800 billion of capacity so I consider that to be a pretty good bazooka,” he said. The $800 billion would be combining the ESF and capital in remaining Federal Reserve facilities.

Mnuchin denied the move was intended to handicap the administration of Democratic President-elect Joe Biden, who will take office on Jan. 20.

“We’re not trying to hinder anything,” Mnuchin said, adding that his department would work closely with the incoming administration “if things get certified.”

He said he and White House Chief of Staff Mark Meadows would speak with congressional Republican leaders later Friday and would redouble their efforts to pass further stimulus measures.

“We want Congress to reappropriate this money,” he said. (Reporting by Andrea Shalal and David Lawder Editing by Chizu Nomiyama)

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