Stimulus Talks Stall On GOP Push To Limit Fed Emergency Lending Programs

Negotiations over a coronavirus economic relief package have stalled over Republican attempts to limit the Federal Reserve’s emergency lending powers and repurpose money authorized for those programs to fund part of the new bill.

Republican lawmakers, led by Senator Pat Toomey (R-PA), want the bill to include a provision requiring all Fed lending programs authorized in the Cares Act back in March to end at the close of 2020. Treasury Secretary Steven Mnuchin has said he believes the law requires the programs to be closed but many Democrats have argued that the programs could be extended.

The Toomey provision could be the key to getting GOP lawmakers to support bigger stimulus payouts.  Senator Ron Johnson (R-Wis), for example, on Friday blocked an effort by Sen. Josh Hawley (R-Mo) to authorize a second round of $1,200 stimulus checks. Johnson told reporters he had concerns about increasing the budget deficit. Ending the Fed facilities could quiet some deficit-based objections because Congress could re-appropriate a much as $429 billion instead of having to authorize new spending funded by higher deficits.

Republicans fear that a new Treasury Secretary could restart the facilities and then use them to funnel money to financially troubled big-spending blue states in an end-run around the GOP controlled Senate.

That fear became more salient on Thursday after the nonpartisan Congressional Research Service backed the Democrat interpretation of the law in a memo released in response to an inquiry from Representatives James Clyburn, the third highest-ranking Democrat, and Maxine Waters, the chairwoman of the House Financial Services Committee.

The Wall Street Journal‘s editorial on Friday described the dynamic:

That Democrats are opposing the Toomey language gives away that their plan is to use the Fed to go around Congress if they don’t control the Senate next year. They’re afraid a GOP Senate won’t agree to another spending blowout to rescue profligate states like Illinois and New Jersey. They want to use the Fed’s municipal and state lending facility, which was stood up this year at the height of the pandemic and market disruption, as the bailout vehicle.

The Cares Act authorized $429 billion of federal government funds to support lending facilities from the Federal Reserve. Those facilities have largely gone unused, with the Fed making just $25 billion of loans and other commitments to businesses and municipalities.
Toomey said Thursday night that plans to revive the facilities risked turning the Fed into a “lender of first resort” instead of the lender of last resort, the standard role of modern central banks.

Republican lawmakers also warn that allowing the facilities to be revived to bail out states would “politicize” the Fed.

“This is the most important thing to me,” Toomey told reporters on Thursday, according to CNBC.