The Federal Reserve's authority to establish emergency-lending programs has emerged as a late sticking point in negotiations on the latest Covid relief package wsj.com/articles/covid…
Sen. Pat Toomey (R., Pa.) wants language included that would bar the Fed from using that authority to start any program "that is similar to any program" established in March and April using funds from the Cares Act
Earlier, he sought to rescind $429 billion in funds Congress approved earlier this year for the Treasury to backstop these programs.

The latest language would go one step further by preventing a future Treasury secretary or Fed chair from starting new programs w/out legislation
Currently, the Fed and Treasury secretary can jointly agree to start any emergency lending program if they cite "unusual and exigent circumstances"

Because the Fed doesn't believe it can sustain capital losses, it usually seeks indemnification from the Treasury for riskier loans
On March 23, Mnuchin provided such indemnification when the Fed launched a corporate lending backstop and a separate securities-market backstop called TALF supported with money from the Exchange Stabilization Fund
Markets rebounded. A few days later, Congress approved the Cares Act, which turbocharged these programs by offering far more money—hundreds of billions instead of tens of billions—to cover losses.
Fast forward to November. When Mnuchin said he wouldn't reauthorize the programs because he believed it went against the spirit of the law, he said the Fed and the Treasury could still restart them if things got dicey again using ESF funds.
Powell has repeatedly said the same, possibly an effort to downplay any market angst about any earlier-than-anticipated termination of these backstops, which have been lightly used (with one exception).
Meantime a legal consensus has pushed back on Mnuchin/Toomey's interpretation of Cares Act.

Even if some lawmakers intended these programs to end on Dec. 31, the CRS report, the former Fed general counsel and others have said that's not what the law says wsj.com/articles/over-…
Toomey's overarching point is this: These programs are fiscal policy, and absent an obvious market meltdown, fiscal policy tools should reside with Congress.

He says he worries the Biden administration will morph the programs to do things that Mnuchin may have resisted.
Democrats say Republicans are trying to sabotage or limit the Biden administration's ability to use these tools.

And they are also calling a process foul, as this really wasn't part of the original relief-bill negotiation:
One impact of the Treasury's decision to terminate these lending programs can be seen as borrowers and banks race to close loans through the Main Street Lending Program, set up for midsize firms, small businesses and nonprofits.
The Boston Fed has accepted $12 billion in loans, up from less than $7 billion at the end of November. There are an additional 434 loans in queue.

This means the program will have done more business in the first two weeks of December than it did in its first three months.

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More from @NickTimiraos

16 Dec
The Fed has updated its plans for bond buying by pledging to continue them until “substantial further progress has been made,” but made no changes to its asset purchases wsj.com/articles/fed-u…
12 of 17 officials see appropriate policy requiring interest rates near zero at least through 2023
Growth and unemployment forecasts for 2020 and 2021 were revised up somewhat, but most officials don't see inflation returning to 2% before 2023
Read 4 tweets
20 Nov
By asking the Fed to return unused Treasury capital, Mnuchin is effectively preventing the Biden administration from being able to use or revamp central bank loan backstops that were made possible by the bipartisan Cares Act passed in March wsj.com/articles/mnuch…
Could a new Treasury secretary bring these back? The easy answer is yes, it doesn’t take much to start a 13(3) facility.

But what made these facilities special was that Congress had provided a huge slug of funding so the Fed could make riskier investments than it otherwise would
So without the Cares Act funding, the Fed might be reluctant to resume the loan programs unless Treasury can make some new funding available.

This becomes a question of not only what is legally possible but how much political risk is the Fed and Treasury willing to take
Read 7 tweets
17 Nov
Judy Shelton failed to secure the votes needed to advance to Senate confirmation on Tuesday due to two absences of Republican senators who are quarantining from the coronavirus wsj.com/articles/judy-…
Tuesday's vote showed there are as many as 50 Republicans who could support Shelton, but only 48 of them were able to vote.

There are as many as 50 senators, including three Republicans, who oppose Shelton. One of them also did not vote Tuesday.
If Rick Scott is able to get back to Washington this week, that would allow McConnell to bring up Shelton's nomination again, with Pence breaking a 49-49 tie.
Read 4 tweets
17 Nov
Sen. Grassley says he will quarantine. This means if Rick Scott also stays in quarantine, Shelton will have no more than 48 votes for her cloture vote today. She could still be confirmed if enough Dems are absent. Image
Where things stand at 11 am:

Given the absences of Scott, Grassley and Alexander, Shelton can be confirmed today only if enough Dems (or announced GOP no votes of Romney and Collins) are no shows. There were six Democrats plus Bernie Sanders who did not vote Monday evening.
Senate Minority Leader Chuck Schumer (D., N.Y.): "Every single Democrat will oppose her nomination today." (h/t @lindsaywise)
Read 10 tweets
14 Sep
New research from Gilchrist, Wei, Yue and Zakrajšek analyzes the impact the Fed's corporate credit backstop had on funding costs for large companies nber.org/papers/w27809

"The announcement ... influenced credit spreads by significantly reducing near-term default risk."
"The benchmark spread for investment-grade U.S. corporate bonds widened nearly 100 basis points—from already elevated levels—over the few days after [the announcement of the CPFF and MMLF] while the corresponding spread for high-yield bonds jumped 180 bps over the same period."
After the announcement of the corporate lending backstop, bonds below the five-year maturity cutoff experience a drop in credit spreads of 70 basis points, relative to investment-grade bonds above the five-year maturity cutoff, during the post-announcement period.
Read 8 tweets
5 Sep
Congress appropriated $500 billion to the Treasury under the Cares Act. $454 billion is to cover losses on Fed lending programs and the other $46 billion for airlines or businesses critical to national security 1/
Treasury committed $195 billion of the former slug of equity but hasn’t allocated the other $259 billion wsj.com/articles/454-b…
Of the second slug (the $46 billion) $17 billion must go to companies critical to national security. Of that, Treasury has made one $700 million loan, making for $16.3 billion that hasn’t been committed in addition to the $259 billion toomey.senate.gov/files/document…
Read 4 tweets

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