Partisan Fight Over Fed Lending Programs Escalates -- Update
By Nick Timiraos and Kate Davidson
The Treasury Department's decision last month not to renew a
suite of emergency Federal Reserve lending programs touched off a
partisan fight over whether and how the Biden administration should
be allowed to use the programs.
Lawmakers pressed Treasury Secretary Steven Mnuchin over his
decision at a hearing Tuesday with Fed Chairman Jerome Powell
before the Senate Banking Committee. It was their first joint
appearance since last month's decision, which drew a rare objection
from the Fed.
The Fed and Treasury had mostly collaborated smoothly over
providing emergency support to financial markets until Mr. Mnuchin
said on Nov. 19 that he wouldn't extend the facilities because he
believed he lacked the authority to do so, a legal opinion that
isn't shared by the Fed. He also said that the programs were no
longer needed and that around $430 billion in unused funds would be
better spent on other assistance.
"My motivation was not political. It was purely legal," Mr.
Mnuchin said. "If you want to extend this, bring back legislation
that would authorize me to do it."
The Fed said it would prefer the lending programs remain in
place until the risks posed to the economy by the coronavirus
pandemic, which has led to a new surge of infections in the U.S.
and globally in recent weeks, has subsided.
"Any central banker would tell you it's premature to be pulling
back support for the economy," Mr. Powell said.
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. Sen.
Sherrod Brown (D., Ohio) said to Mr. Mnuchin at Tuesday's hearing,
"You appear to be trying to sabotage the economy on the way out the
Republicans have said they are worried about relying on the
central bank to deliver relief as a substitute for spending
decisions that should rest with Congress. "We want to avoid
morphing these programs into a mission that was never the intended
purpose," said Sen. Pat Toomey (R., Pa.) in an interview
The Treasury and Fed launched five programs in March and April
supported by $195 billion that the Treasury provided to cover
losses. Congress had approved $454 billion in such funding for Mr.
Mnuchin to allocate to Fed lending programs in the Cares Act
pandemic relief bill in March.
Stock markets rebounded in the days after the Fed and Treasury
announced the programs and staged a rapid recovery in the following
Lawmakers in both parties accused the other of playing politics
with the programs on Tuesday. Before last month's decision by the
Treasury Department, Democratic lawmakers had been wary of the
discretion the Cares Act gave to Mr. Mnuchin; several of them had
referred to the $454 billion as a "slush fund."
But on Tuesday, Sen. Tom Cotton (R., Ark.) said it appeared that
Democrats, in decrying Mr. Mnuchin's decision, "would like to have
a $454 billion slush fund" for the Biden administration.
Sen. Robert Menendez (D., N.J.,) said it wasn't until after
President Trump lost his re-election bid that Republican lawmakers
and the Treasury Department indicated that Mr. Mnuchin lacked the
authority to extend the lending programs
"Ending these facilities is not mandated by law," Mr. Menendez
Meanwhile, stalled negotiations over coronavirus relief showed
signs of new life Tuesday, as a bipartisan group of lawmakers
unveiled a compromise proposal for around $900 billion in new
spending, seeking a middle ground between Democratic and Republican
Mr. Powell has said more government spending will be needed to
provide a stronger and broadly shared rebound. "We can see what may
be the light at the end of the tunnel with the vaccines," he said.
"Some fiscal support now would really help move the economy along
While the economy has rebounded more strongly than the Fed and
many private forecasters anticipated, Mr. Powell said the number of
Americans who had been displaced from their jobs during the
pandemic still exceeded the worst levels of joblessness from the
2008 financial crisis.
"We can both acknowledge the progress and point out just how far
we have left to go," he said.
Write to Nick Timiraos at email@example.com and Kate
Davidson at firstname.lastname@example.org
(END) Dow Jones Newswires
December 01, 2020 13:44 ET (18:44 GMT)
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