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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

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    Fed Closes Out Wild Year as All Eyes Focus on Bond-Buying Program

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    AdvertisementContinue reading the main storySupported byContinue reading the main storyFed Closes Out Wild Year as All Eyes Focus on Bond-Buying ProgramThe central bank’s meeting will wrap up Wednesday, as the Fed stares down a bifurcated economic outlook.Jerome H. Powell, the Federal Reserve chair, will likely need to walk a narrow line as he tries to explain how the Fed will proceed.Credit…Al Drago for The New York TimesDec. 16, 2020, 5:00 a.m. ETWASHINGTON — The Federal Reserve is wrapping up what might be the most activist year in its history with a final scheduled policy meeting this week, one at which it is expected to leave interest rates at rock bottom and to signal continued willingness to help the economy through the challenging pandemic era.Any policy changes out of this week’s gathering are expected to concentrate on the Fed’s large-scale bond-buying program, which it began in March. For a time, it pledged to buy as much government-backed debt as needed to help keep markets functioning before it settled into a steady pace of purchases. But the fate of that program is just one of several momentous questions that lie ahead.In the coming months, the policy-setting Federal Open Market Committee — a mix of governors in Washington and regional Fed presidents — will have to decide whether to ramp up or dial back bond purchases from the current pace of $120 billion per month, what specifically to buy, and how to communicate when they will stop.Fed governors, who oversee bank regulation, will have to consider in 2021 whether to extend tweaks put in place because of the pandemic. And Jerome H. Powell, the Fed chair, and his new, Democratic counterpart at the Treasury Department will have to decide whether to restart emergency loan programs that outgoing Treasury Secretary Steven Mnuchin is ending on his way out the door. Democrats have urged their renewal, and Republicans have warned against it.All of those decisions will be set against a fragmented economic backdrop: The recovery is sputtering in the near-term as the coronavirus spreads and keeps holiday travelers and shoppers at home, but the economy is expected to rebound sharply as a vaccine becomes widely available. The Fed’s monetary policies work with a lag, and the stark divide across time will make calibrating next steps all the more challenging.Mr. Powell will give his assessment of the economic outlook and answer reporter questions at a news conference following the 2 p.m. release of the Fed’s December policy statement. Officials will also release their quarterly economic estimates, which will offer a sense of what path they expect the unemployment rate, inflation and interest rates to follow over the coming years.Mr. Powell will likely need to walk a narrow line as he tries to explain how the Fed will proceed. Many investors are looking for more economic help in the near-term, and anything perceived as complacency could rattle them. Yet his colleagues, in recent speeches, have been divided over how much more the Fed needs to do now, which could make it difficult for the chair — who speaks, in part, as a representative for the Federal Open Market Committee — to present a conclusive message.The Fed has enacted a sweeping series of responses to cushion American workers and businesses against the pandemic’s economic fallout. It slashed interest rates to near-zero in March, rolled out its bond-buying campaign to soothe troubled markets, and unveiled a spate of programs to keep credit flowing to states and cities, small and medium-sized businesses and corporations.Those measures have largely achieved their goals. The central bank averted a financial system meltdown, borrowing costs have held at low levels across many credit markets, and interest rate-sensitive sectors like housing roared back after lockdowns. Yet the next stage could be harder: Millions of people remain out of work nine months into the crisis, many businesses are teetering on the brink, and while a vaccine is in sight, widespread immunity might still be months away.The Fed is also low on new tricks, but not entirely out of them. Officials could, as early as this week’s meeting, change the way they are buying bonds in order to have more of an economic impact.Policymakers are mulling whether to shift toward longer-term debt and away from short-term notes. That wonky maneuver may seem technical, but it could have the effect of holding down borrowing costs on things like mortgages and business loans and, in doing so, set the stage for stronger growth.“The economy is far more sensitive to longer-term rates,” said Priya Misra, global head of rates strategy at TD Securities. She pointed out that without Fed action, longer-term rates will rise as a deluge of Treasury securities enter the market to fund the government’s pandemic spending.But it is not a slam-dunk that such a change will happen at this meeting. Regional Fed presidents have expressed lukewarm appetite for changing the so-called quantitative easing, or Q.E., programs now.“If we need to offer more support or we need to prop up the support that we’ve offered, we can use Q.E. for that, including changing the duration,” Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said in a recent question-and-answer session. “But if you look at financial markets right now, I see no indication that they are misunderstanding where we’re headed and that we need to somehow do something different to get financial markets where we need them to be.”Business & EconomyLatest UpdatesUpdated Dec. 16, 2020, 6:52 a.m. ETStocks are rising as pandemic relief talks and vaccine developments advance.Advocacy groups are rushing to get aid to renters before a federal cutoff date.Companies crucial to vaccine distribution are seeing a flurry of investments.Conditions are evolving quickly. Since the Fed entered its premeeting quiet period, during which officials do not give speeches, virus cases have continued to climb, several real-time data points have pointed to economic weakening, and rates on the closely-watched 10-year Treasury bond have crept higher, making many types of credit a bit more expensive. At the same time, vaccines have been approved and early disbursement has begun.Even if the Fed leaves the contours of its bond-purchase program unchanged for now, economists think the central bank might update the way it talks about its plans for the future. The central bank has indicated that it might offer guidance on how long it plans to buy assets to keep markets performing smoothly and bolster the economy “fairly soon.” That is likely to entail tying its bond-buying plans to qualitative — rather than numbers-based — economic goals.J.P. Morgan analysts think officials might link the buying to the course of the virus by saying that they will “continue purchases for as long as the public health crisis weighs on economic activity,” Michael Feroli, the bank’s chief U.S. economist, wrote in a research note.Economists at Goldman Sachs expect the Fed to pledge that purchases will continue “until the labor market is on track to reach maximum employment and inflation is on track to reach 2 percent.”That wide gap in expectations, even among top Fed-watching firms, underlines why this could be a fraught meeting for Mr. Powell. Disappointing investor expectations could roil markets, but it is not entirely clear what market participants expect.The Fed’s November meeting minutes also raised the possibility that the Fed might take a look at the types of bonds it is buying. The Fed is currently buying about $80 billion worth of Treasury debt and $40 billion in mortgage-backed securities — or M.B.S. — per month. But the minutes show that a few officials worried that “maintaining the current pace of agency M.B.S. purchases could contribute to potential valuation pressures in housing markets.”Whatever tweaks do come are likely to cut in the direction of more overall support for the economy. There are still about 10 million fewer jobs than in February, real-time indicators of consumer spending are coming in soft as virus cases surge, and jobless claims are rocketing higher once again, dimming the near-term outlook.“As economic momentum slows and Covid cases surge, we look for monetary policymakers to fortify the bridge that supports the economy until vaccinations become widely available,” Kathy Bostjancic, chief U.S. financial economist at Oxford Economics, wrote in a note previewing the meeting.The Fed will release a new set of quarterly economic projections at this meeting, and they are expected to reflect a more dire outlook in the near-term but also a stronger bounceback later on. But even with the vaccines coming, wild cards remain — including how much congressional support the economy will get in the near-term.Lawmakers are trying to hash out a compromise deal that would send households money and offer companies support, but Democrats and Republicans have remained divided over issues including liability protection and aid for state and local governments.The lack of a deal so far is one reason that Goldman Sachs economists expect the shift toward buying longer-dated debt at this meeting.“Although no one is under any illusions that a maturity extension is an adequate substitute for a fiscal package in offsetting the impact of the virus resurgence on businesses and workers, it might do some good,” they wrote in a research note. “At the very least, Fed officials might be weary of disappointing market expectations for an easing action in difficult times.”AdvertisementContinue reading the main story More

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    Biden Expected to Name Top Economic Officials This Week

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    WASHINGTON — President-elect Joseph R. Biden Jr. is expected to name top members of his economic team this week, including Cecilia Rouse, a Princeton labor economist, to run the Council of Economic Advisers, and Neera Tanden, the chief executive of the Center for American Progress, to lead the Office of Management and Budget, according to people familiar with the matter.The announcement — which will include Mr. Biden’s decision to name Janet L. Yellen, the former Federal Reserve chair, as Treasury secretary — will culminate in several women in top economic roles, including the first Black woman to lead the Council of Economic Advisers. All three jobs require Senate confirmation.With the picks, Mr. Biden is showcasing a commitment to diversity in his advisers and sending a clear message that economic policymaking in his administration will be shaped by liberal thinkers with a strong focus on worker empowerment as a tool for economic growth.Two of Mr. Biden’s top economic aides during his presidential campaign, Jared Bernstein and Heather Boushey, will also be named to the Council of Economic Advisers, which is a three-member team that advises the president on economic policy. Both Ms. Boushey and Mr. Bernstein come from a liberal, labor-oriented school of economics that views rising inequality as a threat to the economy and emphasizes government efforts to support and empower workers.In many ways, his team is unified by a commitment to running the economy hot — with strong growth and low unemployment — in order to drive up wages. And it is likely to signal an embrace of spending to help workers, businesses and local governments recover from the pandemic recession, regardless of the effect on the federal budget deficit.“President Biden’s appointments show that he is quadrupling down on his commitment to working people and raising wages,” said Jason Furman, an economist at Harvard University’s Kennedy School of Government and the former head of the Council of Economic Advisers under President Barack Obama. “He has appointed four of the best labor market economists in the country to head the Treasury and the Council of Economic Advisers.”In addition to those roles, Mr. Biden is expected to name Adewale Adeyemo, a senior international economic adviser in the Obama administration, as deputy Treasury secretary.Mr. Biden has also selected Brian Deese, a former Obama economic aide who helped lead that administration’s efforts to bail out the American automotive industry, to lead the National Economic Council, according to three people with knowledge of the selection.Mr. Deese, 42, is not an academic economist but a veteran of economic policymaking, having served as the acting head of the Office of Management and Budget and the deputy director of the Economic Council under Mr. Obama. He was also a special adviser on climate change to Mr. Obama, a role that could signal Mr. Biden’s commitment to fashioning an infrastructure bill for his legislative agenda that heavily features spending on clean energy initiatives.Mr. Biden on Sunday announced an all-female White House communications staff, with Jennifer Psaki, a veteran of the Obama administration, in the most visible role as White House press secretary.Kate Bedingfield, 39, who served as a deputy campaign manager for Mr. Biden, will serve as the White House communications director. Karine Jean Pierre, who previously served as the chief public affairs officer for MoveOn.org, will be the principal deputy press secretary. Pili Tobar, a former immigrant advocate with the group America’s Voice, will serve as the deputy White House communications director.Symone Sanders, a senior adviser to Mr. Biden on the campaign, will serve as the senior adviser and chief spokeswoman for Vice President-elect Kamala Harris. Ashley Etienne, a former senior adviser to Speaker Nancy Pelosi, will serve as the communications director for Ms. Harris.The appointments indicate Mr. Biden’s plan to include racial, gender and ideological diversity in top roles, fulfilling a campaign pledge to ensure that a broad swath of America is represented in policymaking decisions.But they could fall short of hopes within the progressive wing of the Democratic Party, which has been frustrated that their views are not being sufficiently represented in early personnel decisions. In particular, the decision to select Ms. Tanden, a divisive and partisan figure in the Democratic Party, could culminate in an intraparty fight, as well as a confirmation battle.Republicans, who are expected to retain control of the Senate, are unlikely to easily pass Ms. Tanden, an Indian-American who advised Hillary Clinton’s 2016 presidential campaign and has been one of the most outspoken critics of President Trump.The Presidential TransitionLatest UpdatesUpdated Nov. 29, 2020, 6:35 p.m. ETBiden names all-female communications team with Jen Psaki as press secretary.Biden sees orthopedic doctor after spraining his ankle while playing with family dog.Biden team wants to tackle child care, elder care, preschool in one overarching plan.She also faces a challenge from Senate Democrats given her role in the 2016 election: Many of those who worked for Senator Bernie Sanders of Vermont, who ran against Mrs. Clinton, remain convinced that Ms. Tanden was part of a group of Democrats working behind the scenes to scuttle his nomination.Mr. Sanders, who ran against — and ultimately endorsed — Mr. Biden, is the top Democrat on the Senate Budget Committee, which vets the director of the Office of Management and Budget, putting the fate of Ms. Tanden’s nomination under his watch.Josh Holmes, a former chief of staff to Senator Mitch McConnell of Kentucky, the majority leader, referred to Ms. Tanden on Twitter on Sunday as a “sacrifice to the confirmation gods,” suggesting that her downfall would sate Republican anger toward Mr. Biden’s presidency and allow other nominees to more easily win confirmation.Drew Brandewie, a spokesman for Senator John Cornyn, Republican of Texas, said on Twitter on Sunday evening that Ms. Tanden “stands zero chance of being confirmed.”The selection of Ms. Tanden, who was involved in the development of the Affordable Care Act as an adviser to the Department of Health and Human Services during the Obama administration, is likely to resurface questions about the funding of the Center for American Progress. The New York Times reported last year that from 2016 through 2018, the center accepted nearly $2.5 million from the United Arab Emirates to fund its National Security and International Policy initiative.In addition, hacked emails from Ms. Tanden that were released through WikiLeaks in 2016 could also provide additional fodder for her critics.Mr. Biden’s other picks are most likely less contentious. Ms. Rouse, a labor economist, worked on Mr. Obama’s Council of Economic Advisers from 2009 to 2011 and at the White House’s National Economic Council during the Clinton administration in the late 1990s.Claudia Goldin, a Harvard economist, a pioneer in research on the role of women in the American economy and one of Ms. Rouse’s thesis advisers in graduate school, called her a leading expert on labor markets and education.“She is a deeply thoughtful person and a superb listener who brings out the best of those around her,” Ms. Goldin said.Mr. Bernstein was Mr. Biden’s first chief economist when he was vice president and has written extensively on the power of low unemployment and strong economic growth to bolster workers and wages. Ms. Boushey runs the Washington Center for Equitable Growth, a liberal think tank focused on inequality, and was a top policy adviser to Mrs. Clinton in 2016. She has focused much of her research and writing on government initiatives meant to increase women’s participation in the labor force, such as paid leave programs.The appointments drew praise from Kevin A. Hassett, Mr. Trump’s first Council of Economic Advisers chairman.“They have put together a very strong team of experienced policymakers and smart economists,” Mr. Hassett said. “At this difficult time, it is great to know that a strong C.E.A. will be helping to guide policy.”Mr. Adeyemo is an immigrant from Nigeria and has extensive experience working at the Treasury Department during the Obama administration, when he was a senior adviser and deputy chief of staff. Mr. Adeyemo was also Mr. Obama’s chief negotiator for the macroeconomic policy provisions of the Trans-Pacific Partnership, which Democrats ultimately opposed, and served as the first chief of staff of the Consumer Financial Protection Bureau. After a two-year stint as a senior adviser at BlackRock, he joined the Obama Foundation in 2019 as its president.Michael D. Shear and Jeanna Smialek contributed reporting. More