The battle for the Fed’s lending powers is holding up the deal

The US Capitol will be on display in Washington (USA) on November 6, 2020 after the 2020 US presidential election.

Erin Scott | Reuters

A last-minute battle over Federal Reserve lending powers has become the latest hurdle for lawmakers on both parties in hopes of passing a $ 900 billion coronavirus stimulus bill.

Although the atmosphere on Capitol Hill remained optimistic about the chances of a deal, Democrats criticize Senator Pat Toomey, R-Pa., In hopes that he will drop regulations on a new sticking point: the Fed’s loan programs.

If the Senator’s language were adopted by Pennsylvania, it would ensure the incoming government cannot revive the Fed’s emergency loan programs.

“That’s the most important thing to me,” Toomey told reporters on Thursday. He added that his stance is about “preventing the Fed from becoming politicized” and “not at all about obstructing the Biden administration in any way or weakening our economy”.

Democrats, concerned about record levels of new Covid infections, say Toomey and other Republicans are working to tie Joe Biden’s hands before his inauguration.

“While we are encouraged by bipartisan efforts to exonerate millions of Americans, the package should not contain unnecessary provisions that would undermine the Treasury Department and the Federal Reserve’s ability to combat economic crises,” said Brian Deese, Biden’s new Secretary of Commerce Council director said in a statement.

“Undermining that authority could mean less lending to businesses on Main Street, higher unemployment and bigger economic problems across the country,” he added.

Senator Pat Toomey, R-Pa.,

Bill Clark | CQ appeal | Getty Images

A Toomey spokesman did not immediately respond to CNBC’s request for comment.

Congress granted the Fed extraordinary lending powers in March through the CARES bill for $ 2.2 trillion, which allowed the central bank to lend to small and medium-sized businesses, as well as state and local governments, thanks to many Covid19 struggled with severe revenue losses.

The Fed said it wanted to extend the programs but it now needs to return the unused capital that has been allocated to the facilities.

These expanded credit powers expire later this year after Treasury Secretary Steven Mnuchin refused to ask Congress for an extension. Janet Yellen, Biden’s Treasury candidate, could theoretically ask lawmakers to reintroduce the programs if Toomey’s language is omitted.

Mnuchin said in November that up to $ 800 billion of potential firepower can be deployed through the Exchange Stabilization Fund and elsewhere if needed, adding, “We don’t need to buy more corporate bonds. The municipal market works, people can land borrowing money in the markets. “

Just minutes before Mnuchin’s November 20 interview, Chicago Fed President Charles Evans told CNBC that the Treasury Department’s move was “disappointing.”

Most of the funds originally allocated, approximately $ 429 billion, have not been used or loaned and will instead be used towards a large portion of the bill currently negotiated.

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