Powell Says Fed Has Not Discussed Lending Programs With Treasury

Federal Reserve Chairman Jerome Powell gave no indication he hopes to extend the central bank’s ongoing emergency lending programs, or to revive programs that were recently forced to close.

“We’re going to continue to monitor financial and credit conditions throughout the economy, and if the kind of emergency conditions arise that are required under that law, then our emergency lending tools will remain available,” Powell told reporters during a press conference Wednesday following the central bank’s two-day policy meeting. “But I’ve had no discussions with anyone at Treasury on that.”

Powell’s remarks appeared to put to rest the question over whether the central bank and the Treasury Department, under its new Democratic leadership, might seek to renew emergency lending programs the Trump administration discontinued at the end of 2020.

Some Democrats had pushed to restart one or more of the facilities, a move that would have provoked a clash with Senate Republicans and risked turning the Fed’s crisis powers into a political football. Republican lawmakers inserted a clause into the Covid-relief act passed by Congress in late December that explicitly banned the Treasury from renewing any of the discontinued Fed programs.

Treasury Secretary Janet Yellen, in responses to written questions from lawmakers, also signaled last week that she was not planning any attempt to revive the programs shuttered by Trump’s Treasury secretary, Steven Mnuchin. Mnuchin had argued that their closure was dictated by language in the Cares Act, the major Covid-19 relief legislation passed in March 2020, which provided backstop funding for several Fed lending facilities.

“The Federal Reserve will continue to provide support to the economy through its ongoing programs and the use of its available tools, but, as mandated by Congress, the 13(3) facilities funded by the Cares Act will not be available,” Yellen said, referring to the section of the Federal Reserve Act that outlines the central bank’s emergency lending authorities.

Under section 13(3), the Fed can lend, during “unusual and exigent circumstances,” to borrowers who can’t find credit from banking institutions. The authority is meant to allow the Fed to provide liquidity to capital markets during times of severe stress, and requires consent by the Treasury secretary.

Last spring, the Fed invoked that authority and received Mnuchin’s approval to open a number of special facilities, including some that required extra funds from Congress -- appropriated under the Cares Act -- to act as a cushion against potential losses. Several of them were set to expire on Dec. 31, according to Mnuchin’s reading.

By late 2020, with capital markets having settled, none of the programs was continuing to make significant loans, but the Fed argued it would be wise to keep them open as a precaution against the chance of renewed turmoil.

Mnuchin turned him down and ordered the Cares Act-funded programs be closed. He agreed, however, to extend the others. The closed facilities included one that purchased corporate bonds, another that bought municipal debt and a third that facilitated loans directly to troubled mid-sized companies.

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