(Bloomberg) – Federal Reserve Chairman Jerome Powell has given no indication that he hopes to expand the central bank’s ongoing emergency lending programs or revive programs that were recently forced to close.
“We will continue to monitor financial and credit conditions across the economy, and if the kind of emergency conditions this law requires, our emergency lending tools will remain available,” Powell told the journalists at a press conference on Wednesday. following the two-day central bank policy meeting. “But I haven’t had any discussions with anyone at Treasury about this.”
Powell’s remarks seemed to end the question of whether the central bank and the Treasury Department, under his new Democratic leadership, could seek to renew the emergency lending programs that the Trump administration halted at the end of 2020.
Some Democrats had pushed to restart one or more facilities, a move that would have sparked a clash with Senate Republicans and risked turning the Fed’s crisis powers into political football. Republican lawmakers inserted a clause into the Covid relief law passed by Congress in late December that explicitly prohibited the Treasury from renewing one of the Fed’s abandoned programs.
Treasury Secretary Janet Yellen, in response to written questions from lawmakers, also signaled last week that she did not anticipate any attempts to revive programs shut down by Trump’s Treasury Secretary Steven Mnuchin. Mnuchin had argued their closure was dictated by the wording of the Cares Act, the main Covid-19 relief law passed in March 2020, which provided support funding for several Fed lending facilities.
“The Federal Reserve will continue to provide support to the economy through its ongoing programs and the use of its available tools, but, as mandated by Congress, the 13 (3) facilities funded by the Cares Act will not be not available, ”Yellen said. , referring to the section of the Federal Reserve Act that describes the central bank’s emergency lending authorities.
Under subsection 13 (3), the Fed may lend, in “unusual and urgent circumstances”, to borrowers who cannot find credit with banking institutions. The authority aims to allow the Fed to provide liquidity to financial markets during times of severe stress, and requires the consent of the Secretary of the Treasury.
Last spring, the Fed invoked this authority and received approval from Mnuchin to open a number of special facilities, some of which required additional congressional funds – allocated under the Cares Act – to act as a cushion against potential losses. Several of them were due to expire on December 31, according to Mnuchin’s reading.
By the end of 2020, with financial markets stabilizing, none of the programs continued to make large loans, but the Fed argued that it would be wise to keep them open as a precaution against the risk of further turmoil. .
Mnuchin refused and ordered the closure of programs funded by the Cares Act. However, he agreed to extend the others. The closed facilities included one that bought corporate bonds, another that bought municipal debt, and a third that facilitated loans directly to struggling midsize businesses.
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