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How much blowback the Fed gets will depend on how quickly the economy is able to recover

how aggressive Powell and former Fed Chair Janet Yellen, now nominated for Treasury secretary, feel they need to be in their economic intervention.

“This is a shot across the bow” by Republicans, said Ed Mills, Washington policy analyst at Raymond James. “All of the commentary after Yellen was selected was, ‘They know the Fed’s authority better than anybody else. They could be this dynamic duo that could do whatever it takes to support this economy.’”

“Republicans exerted their prerogative to send a warning to the Fed: The more creative you get, the more political risk you take,” he added.

The push from Senate Republicans was striking, given that the Fed has received bipartisan praise all year for its efforts to prevent a financial crisis when key debt markets began freezing up at the onset of the pandemic.

But Toomey has framed it less as a rebuke of the Fed than as an effort to head off Democratic plans to use these lending programs to “bail out” struggling businesses and municipalities. The move also comes as Democrats have urged the central bank to do more to combat climate change through its lending programs and oversight of banks, a demand that has drawn opposition from Republicans.

Historically, the Fed’s emergency powers have been about ensuring the proper functioning of markets, but as part of the CARES Act, Congress asked the central bank to step in and more directly bolster nonfinancial corporations, as well as state and local governments.

That was within its power to do without authorization, but Toomey has essentially suggested that, going forward, the Fed should ask Congress for permission to do that type of intervention. The message: The central bank should stick to its traditional role.

“Those programs were complete departures from traditional, historical, normal Fed [emergency] functions, which is why the Fed came to Congress to launch them and to fund them,” Toomey told reporters on Sunday.

“The purpose was to restore the normal functioning of the private lending and capital markets, not as a general, all-purpose fix-all for the economy,” he added. “They were remarkably successful. They achieved the results we wanted. Then, the Democrats came along and decided, now, let’s morph this into some other purpose.”

Lending programs for state and local governments and midsized businesses have both been disappointing to Democrats. The “Main Street” business program lent about $10 billion out of a total capacity of $600 billion. Similarly, the municipal program only lent to a couple of borrowers: Illinois and New York City’s transit system.

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