Toomey, Patrick J

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Senate Republicans Stall Crucial Vote on Fed Nominees

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President Biden’s plans to reshape the Federal Reserve suffered a setback on Tuesday as Republicans delayed a key vote on his five nominees for its Board of Governors.Republicans did not show up for a committee decision that would have advanced the nominees to the full Senate for a confirmation vote. Because a majority of the Senate Banking Committee’s members need to be physically present for such votes to count, their blockade effectively halted the process.The unusual maneuver, spearheaded by Senator Patrick J. Toomey of Pennsylvania, was driven by Republican opposition to Mr. Biden’s pick for the nation’s top bank cop, Sarah Bloom Raskin.The president has renominated Jerome H. Powell as Fed chair and has tapped Lael Brainard, a current Fed governor, as vice chair. He has also nominated the economists Lisa D. Cook and Philip N. Jefferson as Fed governors. But Ms. Raskin — a longtime Washington policymaker and lawyer whom Mr. Biden has picked as vice chair for bank supervision — has garnered the most pushback.To prevent her nomination from advancing to the full Senate, Republicans held up the vote on all five nominees.Democrats and the White House criticized Republicans for engineering a boycott and scrambled for a solution that could get the nominees to a confirmation vote. Senator Sherrod Brown, Democrat of Ohio and chair of the Banking Committee, on Tuesday shot down the idea that he would separate Ms. Raskin from the other nominees to allow the rest to advance. Ms. Raskin could face tough odds of passing, especially on her own.By nominating five of the Fed’s seven governors and all of its highest-ranking leaders, Mr. Biden had a chance to shake up the institution. While some of his picks — like Mr. Powell — represented continuity, together they would have made up the most racially and gender-diverse Fed leadership team ever.Sarah Binder, a professor of political science at George Washington University who co-wrote a book on the politics of the Fed, said Democrats would need to come up with a strategy to overcome the Republican block or the nominees could get stuck in limbo.“It is really a delay — it might yet scupper Raskin,” she said. She noted that Democrats could break the nominations up or try to garner enough support among the full Senate to override the rules and get the nominees past the committee, though that might be a challenge.“It’s pretty uncharted, and they’re going to have to find a way,” Dr. Binder said.Molly Reynolds, a senior fellow in governance studies at the Brookings Institution, said that outside of trying to change Senate rules — which she called the “nuclear option” — Democrats’ clearest avenue was probably to negotiate with Republicans.“They just need a Republican to show up,” she noted, explaining that the senator would not even need to vote yes for the committee to secure a majority and move the candidates along.Tuesday’s maneuver was the latest step in Mr. Toomey’s opposition campaign against Ms. Raskin, who would serve as arguably the nation’s most important bank regulator if confirmed.Mr. Toomey has criticized Ms. Raskin for past comments on climate-related regulation, worrying that she would be too activist in bank oversight. More recently, he has pressed for more information about her interactions with the Fed while she was on the board of a financial technology company that was pushing for a potentially lucrative central bank account.“Until basic questions have been adequately addressed, I do not think the committee should proceed with a vote on Ms. Raskin,” Mr. Toomey said in the statement.White House officials criticized his move as inappropriate when the Fed is wrestling with rapidly rising prices and preparing to raise interest rates next month.“It’s totally irresponsible, in our view — it’s never been more important to have confirmed leadership at the Fed,” said Jen Psaki, the White House press secretary. She added that the administration’s focus now was moving the nominees through the committee and called Mr. Toomey’s probing of Ms. Raskin’s background “false allegations.”The dispute centers on the revolving door between government regulators and the arcane world of financial technology.Mr. Toomey and his colleagues have said Ms. Raskin, a former Fed and Treasury official, had contacted the Federal Reserve Bank of Kansas City on behalf of Reserve Trust, a financial technology company. Reserve Trust secured a strategically important account at the Fed while she was on its board: To this day, it advertises that it is the only company of its kind with what’s known as a “master” account.Master accounts give companies access to the U.S. payment system infrastructure, allowing firms to move money without working with a bank, among other advantages.Republicans are blocking the process over concerns about one of the nominees, Sarah Bloom Raskin.Pool photo by Ken CedenoMs. Raskin said in written responses to Mr. Toomey’s questions early this month that she did “not recall any communications I made to help Reserve Trust obtain a master account.” But Mr. Toomey said in a subsequent letter that the president of the Kansas City Fed, Esther George, had told his staff that Ms. Raskin called her about the account in 2017.The Kansas City Fed has insisted that it followed its normal protocol in granting Reserve Trust’s master account and noted that talking with a firm’s board members was “routine.” But Mr. Toomey has continued to push for more information.“Important questions about Ms. Raskin’s use of the ‘revolving door’ remain unanswered largely because of her repeated disingenuousness with the committee,” Mr. Toomey said in his statement Tuesday.Democrats have emphasized that Ms. Raskin recently committed to a new set of ethics standards, agreeing not to work for financial services companies for four years after she leaves government — a pledge Ms. Cook and Mr. Jefferson also made, at the urging of Senator Elizabeth Warren, Democrat of Massachusetts.Ms. Brainard agreed to a weaker version of that commitment that would bar her from working at bank holding companies and depository institutions outside of mission-driven exceptions like banks that target underserved communities, a spokesperson for Ms. Warren’s office said Tuesday.Mr. Powell declined to make a similar commitment, the spokesperson said. The Fed chair did signal that he would adhere to the administration’s ethics rules, which ban paid work related to government service for two years upon leaving office.On Tuesday, a dozen Republican chairs in the room where the committee met remained empty while Democrats occupied their seats across the room. Democrats took a vote to show support, though it was not binding, and Mr. Brown pledged to reschedule.“Few things we do as senators will do more to help address our country’s economic concerns more than to confirm this slate of nominees, the most diverse and most qualified slate of Fed nominees ever put forward,” Mr. Brown said, chiding Republicans for skipping the session.“They’re taking away probably the most important tool we have — and that’s the Federal Reserve — to combat inflation,” he later added.The Fed has four current governors, in addition to its 12 regional presidents, five of whom vote on monetary policy at any given time. Mr. Powell has already been serving as chair on an interim basis, since his leadership term officially expired this month. Even if the nominees advance, Ms. Raskin may struggle to pass the full Senate. Winning confirmation would require her to maintain full support from all 50 lawmakers who caucus with Democrats and for all those lawmakers to be present unless she can win Republican votes. Senator Ben Ray Luján, Democrat of New Mexico, has been absent as he recovers from a stroke.“The Republicans are playing hardball because they can,” said Ian Katz, the managing director at Capital Alpha Partners. “At the least, it delays her confirmation. It could have the ultimate effect of killing it.” More

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    Fed nominees commit to not taking part in finance’s revolving door.

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    Three of President Biden’s nominees to the Federal Reserve committed to lawmakers that, if confirmed to their posts, they would not work in financial services for four years after leaving the Fed.The pledge comes amid growing concern about the revolving door between Washington and Wall Street.The three potential Fed governors in question — the economists Lisa D. Cook and Philip N. Jefferson and a longtime government official and lawyer, Sarah Bloom Raskin — said they would “commit not to seek employment or compensation” from any financial services company after leaving the board, which oversees the largest banks.Their promises came at the urging of Senator Elizabeth Warren, the Massachusetts Democrat who has criticized the so-called revolving door between government and finance. Fed officials regularly go to work for Wall Street after leaving the institution, making the commitment notable.“These are the strongest ethics standards ever agreed to by Federal Reserve Board nominees,” Ms. Warren said in a statement on Wednesday. “U.S. Senators and the American people can be confident that these public servants will make sound economic policy decisions in the public’s best interest.”Republicans have been questioning Ms. Raskin’s nomination by highlighting her stint on the board of directors for a financial technology company, Reserve Trust.The company got a critical account with the Fed — known as a master account — while Ms. Raskin was on the company’s board. The account provided the firm with advertisable benefits, like access to the Fed’s payments system.During her confirmation hearing before the Senate Committee on Banking, Housing and Urban Affairs last week, senators questioned whether she had used her previous positions at the Fed and Treasury to help secure the account. Ms. Raskin did not confirm or deny whether she had been in touch with the company’s local Fed bank while she sat on its board.The Federal Reserve Bank of Kansas City, which approved the master account, has said that it “did not deviate from its review process in evaluating this request.”Senator Patrick J. Toomey, Republican of Pennsylvania, asked Ms. Raskin to respond in writing by Wednesday about the Reserve Trust situation.Ms. Raskin, in her response, said she did “not recall any communications I made to help Reserve Trust obtain a master account. Had I done so, I would have abided by all applicable ethics rules in such communications.”Amanda Thompson, the communications director for Republicans on the Banking Committee, called those responses a “case of selective amnesia.”The White House has continued to stand behind its nominees. Christopher Meagher, a spokesman for the White House, called the Republican questioning “smears” and said that they “continue to fall flat in the face of scrutiny and facts.”Dr. Cook, Dr. Jefferson and Ms. Raskin are up for confirmation alongside Jerome H. Powell — who Mr. Biden renominated to be Fed chair — and Lael Brainard, a Fed governor who is the Biden administration’s pick for vice chair.Senator Sherrod Brown, Democrat of Ohio and the chairman of the Banking Committee, said last week that all five candidates would face a key committee vote on Feb. 15. More

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    In Washington, ‘Free Trade’ Is No Longer Gospel

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    Like its predecessor, the Biden administration has largely dispensed with the idea of free trade as a goal in and of itself.WASHINGTON — For decades, the principle of “free trade” inspired a kind of religious reverence among most American politicians. Lawmakers, diplomats and presidents justified their policies through the pursuit of freer trade, which, like the spread of democracy and market capitalism, was presumed to be a universal and worthy goal.But as the Biden administration establishes itself in Washington, that longstanding gospel is no longer the prevailing view.Political parties on both the right and left have shifted away from the conventional view that the primary goal of trade policy should be speeding flows of goods and services to lift economic growth. Instead, more politicians have zeroed in on the downsides of past trade deals, which greatly benefited some American workers but stripped others of their jobs.President Donald J. Trump embraced this rethinking on trade by threatening to scrap old deals that he said had sent jobs overseas and renegotiate new ones. His signature pacts, including with Canada, Mexico and China, ended up raising some barriers to trade rather than lowering them, including leaving hefty tariffs in place on Chinese products and more restrictions on auto imports into North America.The Biden administration appears poised to adopt a similar approach, with top officials like Katherine Tai, Mr. Biden’s nominee to run the Office of the United States Trade Representative, promising to focus more on ensuring that trade deals protect the rights and interests of American workers, rather than exporters or consumers.The Senate is expected to vote on Ms. Tai’s nomination on Wednesday, and supporters say she will be easily confirmed.Mr. Biden and his advisers have promised to review the impact that past trade policies have had on economic and racial inequality, and put negotiating new trade deals on the back burner while they focus on improving the domestic economy. And they have not yet made any moves to scale back Mr. Trump’s hefty tariffs on foreign products, saying that they are reviewing them, but that tariffs are a legitimate trade policy tool.In her hearing before the Senate Finance Committee on Feb. 25, Ms. Tai emphasized that she would help usher in a break with past policies that would “pit one of our segments of our workers and our economy against another.”While Ms. Tai reassured senators that she would work with them to promote exports from their districts, she called for a policy that would focus more on how trade affects Americans as workers and wage earners.When asked by Senator Patrick J. Toomey, a Republican of Pennsylvania and a noted free trader, whether the goal of a trade agreement between two modern, developed economies should be the elimination of tariffs and trade barriers, Ms. Tai declined to agree, saying she would want to consider such agreements on a case-by-case basis.“Maybe if you’d asked me this question five or 10 years ago, I would have been inclined to say yes,” Ms. Tai responded. But after the events of the past few years — including the pandemic, the Trump administration’s trade wars and a failed effort by the Obama administration to negotiate a Pacific trade deal — “I think that our trade policies need to be nuanced, and need to take into account all the lessons that we have learned, many of them very painful, from our most recent history,” she said.Katherine Tai, the Biden administration’s nominee for trade representative, promised a break with past policies that had “pit one of our segments of our workers and our economy against another.”Pool photo by Bill O’LearyIn his first major foreign policy speech on March 3, Secretary of State Antony J. Blinken also said that the calculus on free trade had changed.“Some of us previously argued for free trade agreements because we believed Americans would broadly share in the economic gains,” he said. “But we didn’t do enough to understand who would be negatively affected and what would be needed to adequately offset their pain.”“Our approach now will be different,” Mr. Blinken said.Clyde Prestowitz, a U.S. negotiator in the Reagan administration, called the administration’s statements on trade “a revolution.” While Robert E. Lighthizer, Mr. Trump’s trade representative, also parted with the conventional wisdom on trade, he was seen as an exception, a former steel industry lawyer steeped in protectionism, said Mr. Prestowitz.“Now here is Ms. Tai, with a mostly government official career behind her, talking without making any of the formerly necessary gestures toward the sanctity and multitudinous bounties of free trade,” Mr. Prestowitz said. “The conventional wisdom on trade no longer has an iron grip on policymakers and thinkers.”Like Ms. Tai and Mr. Lighthizer, many past presidents and trade officials emphasized fair trade and the idea of holding foreign countries accountable for breaking trade rules. But many also paid homage to the conventional wisdom that free trade itself was a worthy goal because it could help lift the economic fortunes of all countries and enhance global stability by linking economies.That idea reached the height of its popularity under the presidencies of George H.W. Bush, Bill Clinton and George W. Bush, where the United States negotiated the North American Free Trade Agreement, led the talks that gave the World Trade Organization its modern format, granted China permanent normal trading relations, and sealed a series of trade agreements with countries in Latin America, Africa and the Middle East.President Barack Obama initially put less emphasis on free trade deals, instead focusing on the financial crisis and the Affordable Care Act. But in his second term, his administration pushed to sign the Trans-Pacific Partnership, which came under criticism from progressive Democrats for exposing American workers to foreign competition. The deal never won sufficient support in Congress.For Democrats, the downfall of that deal was a turning point, propelling them toward their new consensus on trade. Some, like Dani Rodrik, a professor of political economy at Harvard, argue that recent trade deals have largely not been about cutting tariffs or trade barriers at all, and instead were focused on locking in advantages for pharmaceutical companies and international banks.David Autor, an economist at the Massachusetts Institute of Technology, said that economic theory had never claimed that trade makes everybody better off — it had said that trade would raise overall economic output, but lead to gains and losses for different groups.But economists and politicians alike underestimated how jarring some of those losses could be. Mr. Autor’s influential research shows that expanded trade with China led to the loss of 2.4 million American jobs between 1999 and 2011. China’s growing dominance of a variety of global industries, often accomplished through hefty government subsidies, also weakened the argument that the United States could succeed through free markets alone.Today, “people are much more sensitive to the idea that trade can have very, very disruptive effects,” Mr. Autor said. “There’s no amount of everyday low prices at Walmart that is going to make up for unemployment.”But Mr. Autor said that while the old consensus was “simplistic and harmful,” turning away from the ideal of free trade held dangers too. “Once you open this terrain, lots of terrible policies and expensive subsidies can all march in under the banner of the protection of the American worker,” he said.Some have argued that the approach could forgo important economic gains.William Reinsch, the Scholl Chair in International Business at the Center for Strategic and International Studies, wrote that Americans had come to understand that the argument that “a rising tide would lift all boats” is not always correct.“A rising tide does not lift all boats; it only lifts some boats, and for a long time, workers’ boats have been stuck in the muck while the owners’ yachts flow free,” he wrote. However, Mr. Reinsch added, “no tide lifts no boats. In economic terms, if we forgo the expansion of trade, we do not get the benefits trade provides, and there is nothing to distribute.”Workers making iron bars in a steel factory in China last month.Agence France-Presse — Getty ImagesIt remains to be seen how much the Biden administration will adhere to the Trump administration’s more protectionist policies — like keeping the tariffs on foreign metals and products from China.While the Biden administration has tried to distance its trade policy from that of the previous administration, many former Trump administration officials say the direction appears remarkably similar.In an interview in January, Mr. Lighthizer said that the Trump administration had reoriented trade policy away from the interests of multinational businesses and the Chamber of Commerce and toward working-class people and manufacturing, goals that Democrats also support. He said the Biden administration would try to make trade policy look like their own, but ultimately “stay pretty close.”“The goal is creating communities and families of working people, rather than promoting corporate profits,” Mr. Lighthizer said. “I think the outlines of what we’ve done will stay. They will try to Biden-ize it, make it their own, which they should do, but I’d be surprised if they back away from the great outline of what we’ve done and how we’ve changed the policy.”Ms. Tai has acknowledged some similarities between the Biden and Trump administration’s goals, but emphasized the difference in their tactics.In her confirmation hearing, she said that she shared the Trump administration’s goal of bringing supply chains back to America, but that the prior administration’s policies had created “a lot of disruption and consternation.”“I’d want to accomplish similar goals in a more effective, process-driven manner,” she said. More

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    Powell Focuses on Economic Need at Key Moment in Markets and Politics

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    AdvertisementContinue reading the main storySupported byContinue reading the main storyPowell Focuses on Economic Need at Key Moment in Markets and PoliticsThe Federal Reserve will continue to support the economy, its chair, Jerome H. Powell, pledged, even as concerns about inflation rise.Jerome H. Powell, chair of the Federal Reserve, during a hearing on Capitol Hill in December. He told lawmakers on Tuesday that America’s economy is a long way from recovered.Credit…Al Drago for The New York TimesFeb. 23, 2021Updated 6:57 p.m. ETThe economy is down nearly 10 million jobs since last February, prospects for a rapid recovery — while brighter — remain far from assured, and as Democrats try to move a $1.9 trillion relief package through Congress, Republicans argue that it’s too big and could lead to inflation that would hurt consumers and businesses.Speaking against that tense backdrop on Tuesday, the chair of the Federal Reserve, Jerome H. Powell, delivered a blunt message to lawmakers that the economic outlook remains wildly uncertain and that the central bank must continue its extraordinary efforts to support the economy.It’s a pledge Mr. Powell has made many times in the last 11 months, but it also resonated through financial markets, which had begun to quiver as investors worried that a rapidly improving economy would prompt the Fed to pull back on its efforts to bolster growth.In testimony before the Senate Banking Committee, Mr. Powell declined to weigh in on the Biden administration’s spending plans but pushed back on the idea raised by multiple Republican senators that the economy is on the cusp of running too hot and sparking inflation.“The economic recovery remains uneven and far from complete, and the path ahead is highly uncertain,” Mr. Powell said. “There is a long way to go.”To bolster growth, the Fed plans to encourage lending and spending by holding interest rates near zero, where they have been since March, and by continuing to buy large quantities of bonds to keep money pumping through the financial system. Investors have grown concerned that the Fed might slow those bond purchases sooner rather than later if inflation begins to rise.Those worried investors had driven down stocks for five consecutive days. On Tuesday, the S&P 500 fell nearly 2 percent before snapping back after Mr. Powell’s remarks.In the bond market, interest rates on longer-term government debt have been climbing, reaching their highest point in a year this week. Those rates are the basis for corporate borrowing and mortgages, and their rise contributed to the stock market’s jitters.“We’re in one of these market mania moments in which there’s an intense focus on inflation,” and “he was very sanguine, very calm,” said Julia Coronado, founder of MacroPolicy Perspectives and a former Fed economist. “He kept turning attention back to the labor market.”Mr. Powell reiterated that the Fed plans to keep buying bonds until it sees “substantial further progress” toward its twin goals of full employment and stable inflation. America can “expect us to move carefully, and patiently, and with a lot of advance warning” when it comes to slowing that support, Mr. Powell said.Joblessness has come down sharply after surging last year, but the official unemployment rate remains nearly double its February 2020 level. Job losses have been more acute for members of minority groups and those with less education. Though spending has bounced back, activity in the service industry is still subdued.Vaccines are feeding hopes for a stronger and more complete 2021 rebound. Prices are expected to rise temporarily in the coming months, both compared with the weak readings from last year and, potentially, as consumers spend down savings amassed during the lockdown on restaurant dinners and vacations.But Fed officials have been clear that they do not expect inflation to pick up in a lasting way and that they plan to look past temporary increases when thinking about their policies. Price pressures have been stubbornly tepid, rather than too high, for decades and across many advanced economies.Mr. Powell said that longer-running inflation trends do not “change on a dime” and that if prices start to rise in an alarming way, the Fed has the tools to fight that.“I really do not expect that we’ll be in a situation where inflation rises to troubling levels,” Mr. Powell said. “This is not a problem for this time, as near as I can figure.”He also pushed back on the idea that government spending is poised to send prices rocketing out of control.“There perhaps once was a strong connection between budget deficits and inflation — there really hasn’t been lately,” Mr. Powell said. He noted that while he does expect inflation to jump around in coming months, there is a distinction between a temporary pop in prices and a sustained increase.Still, he declined to weigh in on how much more government support is appropriate.“I, today, will really stay away from fiscal policy,” he said near the very start of the hearing. He went on to tiptoe around or simply decline to answer questions about the minimum wage and the size and various components of the White House’s spending proposal. At one point, he was asked whether he would be “cool” with passing the spending bill or not.“I think by being either cool or uncool, I would have to be expressing an opinion,” Mr. Powell said.The Fed is politically independent and steers away from partisan issues, but it has been providing advice to policymakers in Congress and weighing in on socioeconomic disparities and financial risks tied to climate change over the last year. Some of that outspokenness has drawn Republican attention.Senator Patrick J. Toomey, Republican of Pennsylvania, warned on Tuesday that the central bank should avoid moving beyond its core duties.“As noble as the goals might be, issues such as climate change and racial inequality are simply not the purview of our central bank,” Mr. Toomey said.Mr. Powell did talk about how strong labor markets help people on the margins — those who aren’t trained or those with criminal records — to succeed. He made it clear that the central bank is hoping to return to a strong labor market, like the one that preceded the pandemic.The Fed’s bond purchases can help to bolster the economy by lowering longer-term interest rates and by prodding investors out of safer assets, like government bonds, and into stocks and other more active uses of their cash.Mr. Powell said the economy over the last three months hasn’t “really been making” the substantial progress the Fed is looking for as a precondition for slowing its purchases, as job gains have slowed. But he said there’s an expectation that progress should “pick up as the pandemic subsides.”When it comes to the Fed’s main interest rate, the federal funds rate, which helps to guide borrowing costs across the economy, Mr. Powell also struck a cautious tone. The Fed wants to achieve full employment, hit 2 percent on inflation and believe that the economy is on track for even faster price gains before raising that rate.“Right now, our focus is on providing the economy the support it needs,” Mr. Powell said at one point, summing up his message.Matt Phillips 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

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    What Is 13-3? Why a Debate Over the Fed Is Holding Up Stimulus Talks

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    AdvertisementContinue reading the main storySupported byContinue reading the main storyWhat Is 13-3? Why a Debate Over the Fed Is Holding Up Stimulus TalksThe Fed’s emergency lending authorities are a key part of its job. Republicans want to curb them. Democrats are pushing back.Senate Republicans are trying to make sure that emergency programs backed by the Federal Reserve cannot be restarted after they expire on December 31.Credit…Anna Moneymaker for The New York TimesDec. 18, 2020Updated 7:40 p.m. ETAs markets melted down in March, the Federal Reserve unveiled novel programs meant to keep credit flowing to states, medium-sized businesses and big companies — and Congress handed Treasury Secretary Steven Mnuchin $454 billion to back up the effort.Nine months later, Senate Republicans are trying to make sure that those same programs cannot be restarted after Mr. Mnuchin lets them end on Dec. 31. Beyond preventing their reincarnation under the Biden administration, Republicans are seeking to insert language into a pandemic stimulus package that would limit the Fed’s powers going forward, potentially keeping it from lending to businesses and municipalities in future crises.The last-minute move has drawn Democratic ire, and it has imperiled the fate of relief legislation that economists say is sorely needed as households and businesses stare down a dark pandemic winter. Here is a rundown of how the Fed’s lending powers work and how Republicans are seeking to change them.The Fed can keep credit flowing when conditions are really bad.The Fed’s main and best-known job is setting interest rates to guide the economy. But the central bank was set up in 1913 in large part to stave off bank problems and financial panics — when people become nervous about the future and rush to withdraw their money from bank accounts and sell off stocks, bonds and other investments. Congress dramatically expanded the Fed’s powers to fight panics during the Great Depression, adding Section 13-3 to the Federal Reserve Act.The section allows the Fed to act as a lender of last resort during “unusual and exigent” circumstances — in short, when markets are not working normally because investors are exceptionally worried. The central bank used those powers extensively during the 2008 crisis, including to support politically unpopular bailouts of financial firms. Congress subsequently amended the Fed’s powers so that it would need Treasury’s blessing to roll out new emergency loan programs or to materially change existing ones.The programs provide confidence as much as credit.During the 2008 crisis, the Fed served primarily as a true lender of last resort — it mostly backed up the various financial markets by offering to step in if conditions got really bad. The 2020 emergency loan programs have been way more expansive. Last time, the Fed concentrated on parts of Wall Street most Americans know little about like the commercial paper market and primary dealers. This time, it reintroduced those measures, but it also unveiled new programs that have kept credit available in virtually every part of the economy. It has offered to buy municipal bonds, supported bank lending to small and medium-sized businesses, and bought up corporate debt.The sweeping package was a response to a real problem: Many markets were crashing in March. And the new programs generally worked. While the terms weren’t super generous and relatively few companies and state and local borrowers have taken advantage of these new programs, their existence gave investors confidence that the central bank would prevent a financial collapse.But things started getting messy in mid-November.Most lawmakers agreed that the Fed and Treasury had done a good job reopening credit markets and protecting the economy. But Senator Patrick J. Toomey, a Pennsylvania Republican, started to ask questions this summer about when the programs would end. He said he was worried that the Fed might overstep its boundaries and replace private lenders.After the election, other Republicans joined Mr. Toomey’s push to end the programs. Mr. Mnuchin announced on Nov. 19 that he believed Congress had intended for the five programs backed by the $454 billion Congress authorized to stop lending and buying bonds on Dec. 31. He closed them — while leaving a handful of mostly older programs open — and asked the Fed to return the money he had lent to the central bank.Business & EconomyLatest UpdatesUpdated Dec. 18, 2020, 12:25 p.m. ETLee Raymond, a former Exxon chief, will step down from JPMorgan Chase’s board.U.S. adds chip maker S.M.I.C. and drone maker DJI to its entity list.Volkswagen says semiconductor shortages will cause production delays.The Fed issued a statement saying it was dissatisfied with his choice, but agreed to give the money back.Democrats criticized the move as designed to limit the incoming Biden administration’s options. They began to discuss whether they could reclaim the funds and restart the programs once Mr. Biden took office and his Treasury secretary was confirmed, since Mr. Mnuchin’s decision to close them and claw back the funds rested on dubious legal ground.The new Republican move would cut off that option. Legislative language circulating early Friday suggested that it would prevent “any program or facility that is similar to any program or facility established” using the 2020 appropriation. While that would still allow the Fed to provide liquidity to Wall Street during a crisis, it could seriously limit the central bank’s freedom to lend to businesses, states and localities well into the future.In a statement, Senator Elizabeth Warren, Democrat of Massachusetts, called it an attempt to “to sabotage President Biden and our nation’s economy.”Mr. Toomey has defended his proposal as an effort to protect the Fed from politicization. For example, he said Democrats might try to make the Fed’s programs much more generous to states and local governments.The Treasury secretary would need to have the Fed’s approval to improve the terms to help favored borrowers. But the central bank might not readily agree, as it has generally approached its powers cautiously to avoid attracting political scrutiny and to maintain its status as a nonpartisan institution.Fed officials have avoided weighing in on the congressional showdown underway.“I won’t have anything to say on that beyond what we have already said — that Secretary Mnuchin, as Treasury secretary, would like for the programs to end as of Dec. 31” and that the Fed will give back the money as asked, Richard H. Clarida, the vice chairman of the Fed, said Friday on CNBC.More generally, he added that “we do believe that the 13-3 facilities” have been “very valuable.”Emily Cochrane More