Congressional Democrats and the incoming Biden administration accused Republicans of jeopardising a $900bn fiscal stimulus deal by insisting on curbs to the Federal Reserve’s crisis lending powers, as tensions flared in the last-ditch negotiations.
The late obstacle to an agreement came as leaders of both parties sought to finalise a compromise that would help the world’s largest economy weather the latest surge in coronavirus cases and support the slowing recovery.
The spat over Fed lending flared up unexpectedly on Thursday, when Pat Toomey, the Republican senator from Pennsylvania, said he and other lawmakers from his party had pushed to include a provision preventing the Fed from reviving a series of lending facilities tied to the pandemic that are due to expire at the end of the year.
Democrats reacted angrily to Mr Toomey’s move on Friday morning, saying it could constrain the capacity of US policymakers to respond to the economic downturn next year.
“As we navigate through an unprecedented economic crisis, it is in the interests of the American people to maintain the Fed’s ability to respond quickly and forcefully,” said Brian Deese, who has been tapped by president-elect Joe Biden to be director of the National Economic Council in his administration.
“Undermining that authority could mean less lending to Main Street businesses, higher unemployment, and greater economic pain across the nation.”
Data released late on Thursday revealed a surge in requests for assistance from small and midsize businesses, with just weeks to go before the Fed’s Main Street Lending Program expires.
Congressional Democrats also chimed in.
“We almost have a bipartisan COVID package, but at the last minute Republicans are making a demand that WAS NEVER MENTIONED AS KEY TO THE NEGOTIATIONS,” Brian Schatz, the Democratic senator from Hawaii and a member of the banking committee, wrote in a tweet.
Elizabeth Warren, the Democratic senator from Massachusetts, added: “Proposals to sabotage President Biden and our nation’s economy are reckless, they’re wrong, and they have no place in this legislation,” she said in a statement.
As frictions rose, Republicans retorted that Democrats were more interested in preserving tools to rescue financial markets than reaching a deal. They also pointed out that members of their party including Mr Toomey had long been pushing the idea of limiting the Fed’s ability to revive its lending facilities, so it should not have been a surprise.
“I’m old enough to remember when Dems used to bellyache about the Fed being used to bail out Wall Street, but here they are making sure the Fed can be manipulated to conduct fiscal stimulus and achieve other goals that the Dems can’t get enacted by Congress,” one Republican congressional aide said.
Larry Kudlow, the director of president Donald Trump’s National Economic Council, said the White House backed the Republican position. “We are strongly in support of Senator Toomey’s view with respect to the Treasury emergency funds,” he told reporters.
The fate of the Fed crisis lending facilities has been up in the air since Steven Mnuchin, the US Treasury secretary, instructed the Fed to shut down a number of them at the end of the year, including those that buy corporate and municipal debt.
The Fed and the Treasury would have the power to revive them without congressional approval, using more limited funding from a rainy-day fund at the Treasury, but Mr Toomey’s plan would impede that.
The clash over Fed lending has made it harder for lawmakers to reach a deal on fiscal relief ahead of a deadline late on Friday to keep the government funded and avoid a shutdown of federal operations.
Talks are expected to continue into the weekend now, and it is unclear whether lawmakers will be able to pass a stopgap bill to prevent a shutdown in the meantime.
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