Stimulus update: GOP measure to rein in Fed threatens to derail deal

  • A GOP measure to limit the Federal Reserve’s lending powers imperiled the odds of a weekend stimulus deal on Saturday.
  • Republican and Democrats fought bitterly over the Fed’s emergency aid programs, which have assisted state and local governments as well as mid-sized businesses.
  • Democrats argued the Republican proposal could cripple the incoming Biden administration’s ability to respond to the current economic crisis.
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A late Republican push to curtail the Federal Reserve’s lending authority formed a major roadblock in stimulus negotiations on Saturday — and it threatens to stretch the talks on a $900 billion emergency spending package into next week.

The clash over the Fed between Republicans and Democrats intensified on Capitol Hill. Politico reported that Senate Majority Leader Mitch McConnell told senators in a caucus call that Republicans should stand firm with Sen. Patrick Toomey. He’s demanding to cut off the central bank’s emergency lending powers after they sunset on Dec. 31, the current expiration date under the CARES Act which Congress approved in March.

As the pandemic swept the US and devastated the economy earlier this year, the central bank set up an array of programs to aid the flow of credit and provide loans to mid-sized businesses, along with state and local governments. The proposal would restrain the Fed’s ability to restart those programs without congressional approval. Toomey, the incoming chair of the Senate Banking Committee, called it “a bright red line” this week.

The ensuing fight could imperil the odds of a relief package passing both chambers of Congress this weekend, and raises the prospect of a shutdown given the deadline for government funding to dry up on Sunday evening.

Lawmakers authorized a two-day funding extension late on Friday to settle longstanding policy differences. The $900 billion federal assistance package is expected to include $600 stimulus checks for many Americans, $300 federal unemployment benefits, vaccine distribution funds, as well as another round of small business aid.

Republicans say that keeping the Fed’s emergency lending programs in place could cause the institution to overstep its historic boundaries as a lender of last resort. They also contend the Fed initiatives could create an avenue to aid states and municipalities, long a Democratic priority.

Sen. John Kennedy of Louisiana, a GOP member of the Senate Banking Committee, told reporters that maintaining those programs could turn the Fed into “a commercial bank” and said “we’re gonna stand firm.”

Kennedy also suggested relief talks to resolve the issue could stretch on to “New Year’s or Christmas Eve.”

Democrats are fiercely resisting the measure. They argued its a political move aimed at crippling President-elect Joe Biden’s ability to manage the…

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