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    As Winter Sweeps the South, Fed Officials Focus on Climate Change

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    AdvertisementContinue reading the main storySupported byContinue reading the main storyAs Winter Sweeps the South, Fed Officials Focus on Climate ChangeA top Federal Reserve official says climate scenario analysis could be valuable in making sure that banks mind their climate-tied weak spots.A family in Austin, Texas, kept warm by a fire outside their apartment on Wednesday. They lost power early Monday morning.Credit…Tamir Kalifa for The New York TimesFeb. 18, 2021Updated 2:28 p.m. ETA top Federal Reserve official issued a stark warning on Thursday morning: Banks and other lenders need to prepare themselves for the realities of a world racked by climate change, and regulators must play a key role in ensuring that they do.“Climate change is already imposing substantial economic costs and is projected to have a profound effect on the economy at home and abroad,” Lael Brainard, one of the central bank’s six Washington-based governors, said at an Institute of International Finance event.“Financial institutions that do not put in place frameworks to measure, monitor and manage climate-related risks could face outsized losses on climate-sensitive assets caused by environmental shifts, by a disorderly transition to a low-carbon economy or by a combination of both,” she continued.The grim backdrop to her comments is the abnormally cold weather walloping Texas — leaving millions without electricity and underlining the fact that state and local authorities in some places are underprepared for severe weather that is expected to become more frequent.Such disruptions also matter for the financial system. They pose risks to insurers, can disrupt the payment system and make otherwise reasonable financial bets dicey. That is why it is important for the Fed to understand and plan for them, central bank officials have increasingly said.Ms. Brainard pointed out Thursday that financial companies were addressing the risk by “responding to investors’ demands for climate-friendly portfolios,” among other changes. But she added that regulators like the Fed must also adapt. She raised the possibility that bank overseers might need new supervisory tools, given the challenges associated with climate oversight, which include long time horizons and limited data due to the lack of precedent.“Scenario analysis may be a helpful tool” to assess “implications of climate-related risks under a wide range of assumptions,” Ms. Brainard said, though she was careful to distinguish that such scenarios would be distinct from full-fledged stress tests.Weighing in on climate risks publicly is new territory for the Fed. Officials spent years tiptoeing around the topic, which is politically charged in the United States. The central bank only fully joined a global coalition dedicated to research on girding the financial system against climate risk late last year. The possibility of climate-tied stress tests has been especially contentious, and has recently drawn criticism from Republican lawmakers.“We have seen banks make politically motivated and public relations-focused decisions to limit credit availability to these industries,” more than 40 House Republican lawmakers said in a December letter, specifically referring to coal, oil and gas. They added that “climate change stress tests could perpetuate this trend, allowing regulated banks to cite negative impacts on their supervisory tests as an excuse to defund or divest from these crucial industries.”Jerome H. Powell, the Fed chair, and Randal K. Quarles, the vice chair for supervision — both named to their jobs by President Donald J. Trump — suggested in response that the Fed was in the early stages of researching its role in climate oversight.“We would note that it has long been the policy of the Federal Reserve to not dictate to banks what lawful industries they can and cannot serve, as those business decisions should be made solely by each institution,” they wrote last month.Mr. Powell and Mr. Quarles echoed the lawmakers’ assertion that the Fed’s bank stress tests measured bank capital needs over a much shorter time frame than climate change, though they said the Fed was working to help banks manage their risks, including those related to climate.The central bank is quickly moving toward greater activism on the topic. Its Supervision Climate Committee, announced last month, will work “to develop an appropriate program” to supervise banks’s climate-related risks, Ms. Brainard said Thursday. The Fed is also co-chair of a task force on climate-related financial risks at the Basel Committee on Banking Supervision, a global regulatory group.Though the central bank is politically independent, President Biden has placed climate at the center of his administration’s economic priorities. Treasury Secretary Janet L. Yellen has pledged to “fight the climate crisis.”Ms. Brainard, the Fed’s last remaining governor appointed by President Barack Obama, has been a leading voice in pushing for greater attention to climate issues, speaking on the matter at a conference in 2019. So has Mary C. Daly, president of the Federal Reserve Bank of San Francisco, who held that conference.“It is a fact that severe weather events are increasing,” Ms. Daly said during a webcast event this week, noting that “half the country is in a winter storm, and then in the summer they’ll be in a heat wave.”She said the Fed needed to figure out how to deal with potentially disruptive risks as they emerged given that it is responsible for the nation’s economic health, works with other regulators to protect the safety of the financial system and is the steward of the payments system — the guts of the financial system in which money is transferred and checks are processed.“We have to understand what the risks are, and think about how those risks can be mitigated,” Ms. Daly said. “Our responsibility is to look forward, and ask not just what is happening today, but what are the risks.”AdvertisementContinue reading the main story More

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    Fed Chair Says Policymakers Should Focus on Full Employment

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesSee Your Local RiskNew Variants TrackerVaccine RolloutAdvertisementContinue reading the main storySupported byContinue reading the main storyThe Fed Chair Is Worried About Getting People Back to WorkPlaying down inflation worries, Jerome H. Powell said policymakers needed to focus on restoring maximum employment.Jerome H. Powell, chair of the Federal Reserve, said reaching maximum employment after the pandemic would require “a societywide commitment” in a speech to the Economic Club of New York on Wednesday.CreditCredit…Al Drago for The New York TimesFeb. 10, 2021, 4:39 p.m. ETAs some prominent economists fret that the government might overdo its pandemic response and prompt prices to shoot higher, the nation’s top inflation fighter has a countermessage: Policymakers should stay focused on restoring full employment.“Given the number of people who have lost their jobs and the likelihood that some will struggle to find work in the postpandemic economy, achieving and sustaining maximum employment will require more than supportive monetary policy,” Jerome H. Powell, the chair of the Federal Reserve, said in speech to the Economic Club of New York on Wednesday. “It will require a societywide commitment.”Mr. Powell called policies that would bring the coronavirus pandemic to an end as soon as possible “paramount” and said both workers and businesses that had been disrupted by the crisis “are likely to need continued support.”Unemployment remains sharply elevated at 6.3 percent, up from 3.5 percent before the pandemic, and jumps to about 10 percent when adjusted for misclassified job statuses and recent dropouts from the work force.The pain has also been uneven. Employment has dropped just 4 percent for workers earning high wages but “a staggering 17 percent” for the bottom quartile of earners, Mr. Powell pointed out.Separately, he noted that “inflation has been much lower and more stable over the past three decades than in earlier times,” and later added that he did not expect it to accelerate in a sustained way coming out of the pandemic.Economists have often treated high employment and low inflation as conflicting goals. Policies that foster strong demand and pull workers back into the labor market can push up wages as businesses compete for talent, prompting them to raise prices both because they need to pass along their rising costs and because eager consumers will accept such increases — at least in theory. But the arithmetic has shifted in recent decades, as annual inflation remained stuck below the Fed’s 2 percent goal even during long periods of very low joblessness.President Biden and top Democrats are moving quickly to try to approve a $1.9 billion pandemic relief package. But some economists, including former Treasury Secretary Lawrence H. Summers, have warned that the large package could touch off long-dormant price increases. Many Republican lawmakers have also cited that risk as a reason to oppose the package.Mr. Powell did not weigh in on the package specifically, but he did seem to rebut many of those concerns. He and his colleagues have been unusually vocal in pushing for more fiscal support for the economy throughout the coronavirus era, with some saying the bigger risk is doing too little rather than doing too much.“I’m reluctant to get into what is clearly a very active debate,” Mr. Powell said when asked specifically about fiscal policy. But he added that “it is the essential tool for this situation.”The Coronavirus Outbreak More

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    Do Fed Policies Fuel Bubbles? Some See GameStop as a Red Flag

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    #masthead-section-label, #masthead-bar-one { display: none }GameStop vs. Wall StreetGameStop Stock FallsYoung, Fearless and Shaking Up Wall StreetHow to Win the Stock MarketGameStop and Your TaxesAdvertisementContinue reading the main storySupported byContinue reading the main storyDo Fed Policies Fuel Bubbles? Some See GameStop as a Red FlagAnalysts warn that low-interest rates are promoting speculative bubbles. The Fed itself has downplayed the possibility that it’s behind asset prices.GameStop’s share price last month when a rush of retail traders coordinated to push up the company’s stock value.Credit…Tony Cenicola/The New York TimesJeanna Smialek and Feb. 9, 2021Updated 5:33 p.m. ETBefore it fueled the run-up in GameStop’s stock, WallStreetBets, the Reddit message board, had another claim to fame: It helped popularize a series of memes centered on the Federal Reserve chair, Jerome H. Powell, and his central bank’s policy of keeping interest rates near rock bottom while buying government bonds to bolster the economy.“Money printer go brrrrr,” many of them read, suggesting that the Fed chair was essentially printing money and propping up markets by pumping cash into them through its program to buy government-backed bonds.Reddit and Twitter made images playing on Mr. Powell’s persona — he’s referred to almost exclusively as “JPOW” on WallStreetBets — so ubiquitous that they’ve become paraphernalia. Amazon now sells sweatshirts (Prime eligible!) printed with an image of the Fed chair as a Christ figure ringed in a halo of golden light. In place of the Bible, the gospel he holds declares, “Recession canceled, stocks only go up.”The blind optimism embodied in that statement — one might call it irrational exuberance — runs the risk of inflating bubbles in markets. Some experts see the saga of GameStop as a cautionary example of problems that can develop when investors get swept up in market momentum, driven to some extent by the Fed’s attempts to keep the economy humming along with low rates and bond purchases.“We’re observing a market mania, and the cost of money has something to do with this,” said Peter Fisher, who teaches finance at Dartmouth’s Tuck School of Business and once served in the Treasury Department and Federal Reserve. “It’s just not credible to suggest that the momentum in equity markets has nothing to do with the Fed’s efforts to keep interest rates so low for so long.”To be clear, GameStop has been an unusual situation.Hedge funds had been betting against the retailer’s stock, or “shorting” it, assuming its share price would fall. A rush of retail traders coordinated to make that bet go bad by pushing up GameStop’s price. Because of the way short selling works, the hedge funds were forced to buy GameStop themselves to limit their losses. The stock price skyrocketed, jumping more than 600 percent in days.A mass of newly minted retail investors has poured into the stock market over the last year, thanks to a confluence of factors including fewer social opportunities and work-from-home arrangements, temporary disruption of sports betting and the rise of trading that is billed as “commission free.” Retail trading of individual stocks now represents roughly 25 percent of overall stock market volume compared with just 10 percent in 2019, according to Goldman Sachs.But a shared belief that this is a good time to buy stocks is also fueling that trend.Leaving aside the surge — and then the crash — in so-called meme stocks, the market appears to be flirting with euphoria. Price-to-earnings ratios and other market barometers are at heights not seen in two decades, since the tail end of the dot-com boom.Much as they did in the tech stock frenzy of the 1990s, individuals are pushing levels of trading activity sharply higher, traders are borrowing on margin to buy stock, and investors are snapping up public offerings from unprofitable or unproven companies.Analysts across Wall Street say the traditional drivers of stock price movements — changing expectations for corporate profits and revenues — have in many cases become less relevant.In fact, the surge has come when the American economy remains damaged by the coronavirus pandemic. Fresh data released on Friday showed the economy in January was still nearly 10 million jobs short of employment levels that prevailed before the virus struck.Some of the bump has come because investors are placing their bets based on expectations about corporate prospects once demand has snapped back and the job market has healed. But analysts said a combination of fiscal stimulus — including checks that put money into consumers’ pockets — and the Fed’s cheap money policies have also helped bolster stock prices.The timing checks out. When the Covid-19 crisis first gripped the United States last February and March, the market plunged. The S&P 500 — which had been at record highs — collapsed by nearly 34 percent in a matter of weeks. Conditions became so volatile that even typically stable markets, such as that for Treasury bonds, began to malfunction under the strain.To keep the panic from freezing the financial system and worsening the economic damage, the Fed cut interest rates nearly to zero on March 15 and announced a series of major actions on March 23. The central bank said that it was willing to buy unlimited quantities of government-backed debt, and that it would tiptoe into the corporate bond market for the first time ever to prevent the pandemic’s market fallout from turning into a full-blown financial crisis.Jerome H. Powell, the Federal Reserve chair, said in late January that monetary policy should not be the first line of defense in containing financial risks.Credit…Al Drago for The New York TimesMarkets rejoiced. Stocks bottomed out and then ricocheted higher, climbing a 9.4 percent the next day and ultimately staging the best three-day performance for the index since 1933.“When essentially your central bank has drawn a line in the sand, as they did last March, then people understand that it’s a one-way bet,” said Paul McCulley, former chief economist of Pimco, a giant asset management shop.The S&P 500 stock index has jumped more than 70 percent since then. To put the breakneck speed of that run-up into context, the S&P 500 has climbed about as much over the past 10 months than it had in the four years leading up to the pandemic.When it comes to the Fed’s influence on stock prices, some of it is purely mechanical. When companies can borrow for less, it allows for bigger profits and cheaper business expansion opportunities, which could elevate their worth in the eyes of stockholders. Some of the increase probably reflects the reality that super-low rates push investors out of bonds and into riskier assets like stocks as they seek better returns.But analysts warn that part of the run-up simply owes to sentiment: Investors believe stocks will go up, in some cases because they believe in the Fed, and so they keep buying.The downside is that people can lose faith in an ever-rising stock market. And when the music stops, an optimism-fueled bubble can become a pessimism-pricked burst.GameStop in particular “does illustrate some of the financial vulnerabilities that can stem from ultra-loose monetary and fiscal policies,” Neil Shearing at Capital Economics wrote in a research note last week, noting that super-low interest rates, government stimulus payments, lockdowns and platforms that democratize trading have all come against a backdrop of “longstanding societal strains and the perception of a widening schism between Wall Street and Main Street.”Still, Mr. Shearing said in an interview, the stock market as a whole does not yet look dramatically overextended, and the Fed needs to focus on righting a pandemic-damaged economy — which is the goal of its low-rate and bond buying policies.The Fed argues that it is not driving asset prices to the degree that many believe. While Mr. Powell, the Fed chair, declined to discuss GameStop specifically at a news conference in late January, he painted financial risks over all as “moderate.” “If you look at where it’s really been driving asset prices, really in the last couple of months, it isn’t monetary policy: It’s been expectations about vaccines, and it’s also fiscal policy,” Mr. Powell said. “I think that the connection between low interest rates and asset values is probably something that’s not as tight as people think because a lot of different factors are driving asset prices at any given time.”But if, as many believe, the Fed’s low rates are a substantial part of the story, it’s unclear that raising them slightly would stop a run-up in stock prices. While slowing bond purchases probably could take the shine off investors’ enthusiasm, that could come at a cost to the real economy.Regardless, Fed officials are unlikely to try to cool things off in the market any time soon.“If one group of speculators wants to have a battle of wills with another group of speculators over an individual stock, God bless them,” Neel Kashkari, the Minneapolis Fed president, said at a virtual town hall event last week. He added that he was not “at all thinking about modifying my views on monetary policy because of speculators in these individual stocks.”AdvertisementContinue reading the main story More

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    Fed Officials Debated Rate Liftoff in 2015, Offering Lessons for Today

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    #masthead-section-label, #masthead-bar-one { display: none }The Jobs CrisisCurrent Unemployment RateThe First Six MonthsPermanent LayoffsWhen a $600 Lifeline EndedAdvertisementContinue reading the main storySupported byContinue reading the main storyFed Officials Debated Rate Liftoff in 2015, Offering Lessons for TodayThe Federal Reserve raised rates from near zero in 2015. The discussion back then — and developments since — will inform their future policy.The Federal Reserve Board building in Washington. The central bank raised rates in 2015 as the unemployment rate dropped.Credit…Ting Shen for The New York TimesJan. 8, 2021Updated 2:24 p.m. ETThe Federal Reserve lifted interest rates from near zero in 2015 after years of holding them at rock bottom following the 2008 global financial crisis. Transcripts from their policy discussions, released Friday, show just how fraught that decision was.The debate that played out then is especially relevant now, when the central bank has again slashed interest rates practically to zero, this time to fight the pandemic-induced economic downturn. The concerns that officials voiced over lifting rates in 2015 — that inflation would not pick up, and that the labor market had further to heal — proved prescient in ways that will inform policy setting in the years to come.The Fed, under Chair Janet L. Yellen, raised its policy rate in 2015 as the unemployment rate dropped. Officials worried that if they waited too long to nudge borrowing costs higher, they would stoke an economic overheating that would push inflation higher and prove hard to contain.The logic, at the time, was that monetary policy works with “long and variable” lags, and that it was better to start to gently normalize policy before rapid price gains actually showed up.But even back then, not everyone on the Fed’s rate-setting Federal Open Market Committee was comfortable with the plan. When the decision to lift interest rates came in December, Governor Lael Brainard seemed to question it — arguing that the labor market still had room to expand and that inflation was coming in short of the committee’s 2 percent goal. She ultimately voted for the decision alongside Ms. Yellen and her fellow policymakers.“The recent price data give little hint that this undershooting of our target will end any time soon,” Ms. Brainard said of inflation at the time, according to the transcript. That, paired with risks from a slowdown overseas, made her place “somewhat greater weight on the possible regret associated with tightening too early than on the possible regret associated with waiting a little longer.”In explaining that she would vote for the increase anyway, Ms. Brainard said she placed “a very high premium on ensuring the credibility of monetary policy” and appreciated the thoughtful process Ms. Yellen and the staff had undergone in planning to change the policy. She suggested in 2019 that moving rates up in 2015 was a mistake, and that “a better alternative would have been to delay liftoff until we had achieved our targets.”Stanley Fischer, the vice chairman at the time, laid out a concise explanation of why the committee was moving.“Why move now?” he said. “First, as the chair has emphasized, our actions become effective with a lag. Second, there are some signs of accumulating financial stability problems. And, third, the signal we will be sending will reinforce the fact that our economic situation is continuing to normalize.”Jerome H. Powell, then a Fed governor and now the chair, said at the time that remaining room for labor market gains was “probably modest” but highly uncertain, and that the participation rate — which measures people working or looking for work — might rebound.“I’m not in any hurry to conclude that the current low level of participation reflects immutable structural factors,” Mr. Powell said. “I think it’s likely to be necessary for the economy to run above trend for some time to ensure that inflation does reach our 2 percent target.”The more reluctant stances aged comparatively well. In the time since then, many economists and analysts have viewed the Fed’s pre-emptive rate increases as possibly premature. The unemployment rate continued to drop for years, but as more workers entered the job market, wages increased only moderately. Price gains remained stable, and actually a bit softer than Fed officials were hoping.As a result, the Fed has reassessed how it sets monetary policy. Mr. Powell said last year that he and his colleagues would now focus on “shortfalls” from full employment — worrying only if the job market is coming in weak, not if it’s coming in strong, as long as inflation is contained.They no longer plan to raise interest rates to fend off inflation before it shows up, officials have said, paving the way for longer periods of lower rates.AdvertisementContinue reading the main story More

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    The Year the Fed Changed Forever

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesThe Stimulus DealThe Latest Vaccine InformationF.A.Q.Jerome H. Powell, the Federal Reserve chair, has faced some of the most trying months in the central bank’s history.Credit…Nate Palmer for The New York TimesSkip to contentSkip to site indexThe Year the Fed Changed ForeverJerome H. Powell’s central bank slashed rates, bought bonds in huge sums and rolled out never-before-tried loan programs that shifted its identity. The backlash is already beginning.Jerome H. Powell, the Federal Reserve chair, has faced some of the most trying months in the central bank’s history.Credit…Nate Palmer for The New York TimesSupported byContinue reading the main storyDec. 23, 2020Updated 4:04 p.m. ETWASHINGTON — As Jerome H. Powell, the Federal Reserve chair, rang in 2020 in Florida, where he was celebrating his son’s wedding, his work life seemed to be entering a period of relative calm. President Trump’s public attacks on the central bank had eased up after 18 months of steady criticism, and the trade war with China seemed to be cooling, brightening the outlook for markets and the economy.Yet the earliest signs of a new — and far more dangerous — crisis were surfacing some 8,000 miles away. The novel coronavirus had been detected in Wuhan, China. Mr. Powell and his colleagues were about to face some of the most trying months in Fed history.By mid-March, as markets were crashing, the Fed had cut interest rates to near zero to protect the economy. By March 23, to avert a full-blown financial crisis, the Fed had rolled out nearly its entire 2008 menu of emergency loan programs, while teaming up with the Treasury Department to announce programs that had never been tried — including plans to support lending to small and medium-size businesses and buy corporate debt. In early April, it tacked on a plan to get credit flowing to states.“We crossed a lot of red lines that had not been crossed before,” Mr. Powell said at an event in May.The Fed’s job in normal times is to help the economy operate at an even keel — to keep prices stable and jobs plentiful. Its sweeping pandemic response pushed its powers into new territory. The central bank restored calm to markets and helped keep credit available to consumers and businesses. It also led Republicans to try to limit the vast tool set of the politically independent and unelected institution. The Fed’s emergency loan programs became a sticking point in the negotiations over the government spending package Congress approved this week.But even amid the backlash, the Fed’s work in salvaging a pandemic-stricken economy remains unfinished, with millions of people out of jobs and businesses suffering.The Fed is likely to keep rates at rock bottom for years, guided by a new approach to setting monetary policy adopted this summer that aims for slightly higher inflation and tests how low unemployment can fall.And the Fed’s extraordinary actions in 2020 weren’t aimed only at keeping credit flowing. Mr. Powell and other top Fed officials pushed for more government spending to help businesses and households, an uncharacteristically bold stance for an institution that tries mightily to avoid politics. As the Fed took a more expansive view of its mission, it weighed in on climate change, racial equity and other issues its leaders had typically avoided.“We’ve often relegated racial equity, inequality, climate change to simply social issues,” Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said in an interview. “That’s a mistake. They are economic issues.”In Washington, reactions to the Fed’s bigger role have been swift and divided. Democrats want the Fed to do more, portraying the attention to climate-related financial risks as a welcome step but just a beginning. They have also pushed the Fed to use its emergency lending powers to funnel cheap credit to state and local governments and small businesses.The Fed’s sweeping pandemic response pushed its powers into new territory.Credit…Ting Shen for The New York TimesRepublicans have worked to restrict the Fed to ensure that the role it has played in this pandemic does not outlast the crisis.Patrick J. Toomey, a Republican senator from Pennsylvania, spearheaded the effort to insert language into the relief package that could have forced future Fed emergency lending programs to stick to soothing Wall Street instead of trying to also directly support Main Street, as the Fed has done in the current downturn.Republicans worry that the Fed could use its power to support partisan goals — by invoking its regulatory power over banks, for instance, to treat oil and gas companies as financial risks, or by propping up financially troubled municipal governments.“Fiscal and social policy is the rightful realm of the people who are accountable to the American people, and that’s us, that’s Congress,” Mr. Toomey, who could be the next banking committee chairman and thus one of Mr. Powell’s most important overseers, said last week from the Senate floor.Mr. Toomey’s proposal was watered down during congressional negotiations, clearing the way for a broader relief deal: Congress barred the central bank from re-establishing the exact facilities used in 2020, but it did not cut off its power to help states and companies in the future.The Coronavirus Outbreak More

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    Lawmakers Resolve Fed Dispute as They Race to Close Stimulus Deal

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesThe Latest Vaccine InformationU.S. Deaths Surpass 300,000F.A.Q.AdvertisementContinue reading the main storySupported byContinue reading the main storyLawmakers Resolve Fed Dispute as They Race to Close Stimulus DealTop senators appeared to strike an agreement on the central bank’s lending powers as they struggled to clear away the last sticking points in the $900 billion compromise plan.Senator Pat Toomey, Republican of Pennsylvania, at the Capitol on Saturday. His proposal on the Federal Reserve is the primary issue remaining in efforts to finalize a $900 billion stimulus deal.Credit…Stefani Reynolds for The New York TimesEmily Cochrane and Published More

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    Congress Grasps for Stimulus Deal as Fed Dispute Poses Final Hurdle

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesThe Latest Vaccine InformationU.S. Deaths Surpass 300,000F.A.Q.AdvertisementContinue reading the main storySupported byContinue reading the main storyCongress Grasps for Stimulus Deal as Fed Dispute Poses Final HurdleLeaders struggled to clear away the last sticking points in the $900 billion compromise plan, including a stubborn disagreement over the central bank’s lending powers.Senator Pat Toomey, Republican of Pennsylvania, at the Capitol on Saturday. His proposal on the Federal Reserve is the primary issue remaining in efforts to finalize a $900 billion stimulus deal.Credit…Stefani Reynolds for The New York TimesEmily Cochrane and Dec. 19, 2020, 7:32 p.m. ETWASHINGTON — Congressional leaders worked feverishly on Saturday to resolve an impasse over a Republican push to curtail the powers of the Federal Reserve that was threatening to derail a compromise $900 billion stimulus plan, racing against a Sunday-night deadline to avoid a government shutdown.After a monthslong impasse on a pandemic aid package, Democrats and Republicans were tantalizingly close to completing the emergency plan to rush direct payments, unemployment benefits and food and rental assistance to millions of Americans, relief to businesses, and provide funds for vaccine distribution.But with time running out for a deal, they remained divided over a proposal by Senator Patrick J. Toomey, Republican of Pennsylvania, to ensure the termination of a series of pandemic relief programs created this year by the Fed and potentially curtail the central bank’s ability to fight financial crises in the future.“We’re right within reach,” Speaker Nancy Pelosi privately told House Democrats in a party conference call on Saturday. But she said Mr. Toomey’s late-stage demands to rein in the Fed were slowing the process.By Saturday evening, Senator Richard J. Durbin of Illinois, the second-ranking Democrat, said the dispute had cost negotiators another day in their efforts to cement a deal.“It won’t be tonight,” Mr. Durbin said. “It really is up to Mr. Toomey at this point, what he will accept.”Everything else, he said, is “pretty close.”The emerging deal would send direct payments of $600 to many Americans and provide enhanced federal jobless payments of $300-per-week until early spring. It would also provide hundreds of billions of dollars to prop up small businesses, schools and other institutions struggling amid the pandemic.But Democrats said that Mr. Toomey’s proposal, which has been embraced by Republicans, amounted to an attempt to undercut President-elect Joseph R. Biden Jr. and his administration’s ability to continue supporting the country’s economic recovery.As drafted, it would prevent the Fed and the Treasury Department from re-establishing programs that have helped to keep credit flowing to municipal borrowers, medium-sized businesses and corporations during the pandemic recession. It would also bar the creation of “similar” programs going forward.Lawmakers and aides in both parties acknowledged that the Fed provision presented the most significant hurdle to a final agreement, even though negotiators were still haggling over a number of outstanding technical details, including how to provide for food assistance and the scope of unemployment benefits.Senator Chuck Schumer of New York, the Democratic minority leader, criticized the Toomey proposal.Credit…Stefani Reynolds for The New York TimesSenator Chuck Schumer, Democrat of New York and the minority leader, said on the Senate floor that Mr. Toomey’s language was the “number one outstanding issue.”With government funding set to lapse Sunday and both chambers hoping to merge the stimulus package with a catchall measure to cover all federal spending for the remainder of the fiscal year, time was dwindling to find a resolution.The Coronavirus Outbreak More