Senator Patrick Toomey, R-Pa., On Monday defended his opposition to the expansion of the Federal Reserve’s emergency loan programs, which emerged as a last-minute sticking point in coronavirus stimulus negotiations.
An agreement was finally reached over the weekend on the Fed’s lending powers, paving the way for an agreement on the larger $ 900 billion aid package. Congress was due to vote on the bill on Monday.
The Democrats feared that Toomey’s initial proposal would prevent the Fed from responding appropriately to future crises.
In an interview on Squawk Box, Toomey said he fully supports the wide-ranging loan programs the central bank launched in March in response to the burgeoning pandemic. However, the Pennsylvania Republican contended that they should wind down in late December and require Congress approval again before they restart.
“These are unprecedented, extraordinary forces that are only justified in an emergency,” Toomey told CNBC. “The Fed realized that. You came to Congress in March and said, ‘We want to do that. Are you going to fund it?’ And then they set it up, and I voted for it. I supported that because I thought we were in such an emergency. We are clearly not in a financial crisis right now. “
Rather, Toomey said the U.S. economy has recovered well from the pandemic except for a few sectors such as travel and hospitality. Because of this, Toomey said that economic aid programs should be more targeted.
Some Democrats had criticized Toomey’s initial stance on the Fed, pointing out that he and other Republicans would try to curtail the tools available to President-elect Joe Biden’s administration once it takes power in January. Toomey said he is fighting to keep the central bank on its monetary track.
Steve Kelly, spokesman for Toomey, told Reuters that the Senator’s agreement with the Democrats “suspends unused CARES Act funds of more than $ 429 billion, finalizing the CARES Act credit facilities until December 31, 2020 ended, preventing those facilities from being restarted and banning their duplication without the approval of Congress. “A senior Democratic adviser, according to Reuters, said Toomey had agreed to” remove the broad language in his proposal that would have prevented the Fed chairman from going forward to set up similar facilities “.
Toomey, who serves on the Senate Finance, Budget and Banking committees, said on CNBC Monday, “I fear there is tremendous political pressure to abuse these liquidity facilities that have successfully restored market liquidity and transforming it into such an instrument of fiscal policy, which is a terrible idea. “
Treasury Secretary Steven Mnuchin told CNBC that he believed the Democrats and Republicans made “a very good compromise” on the Fed’s emergency lending powers. “This is no different than after the financial crisis in Dodd-Frank,” he said in “Squawk on the Street” on Monday, referring to the 2010 law that regulated financial institutions. “In the past, the Fed could lend directly to a company, and Congress said, ‘No. We want you to come back if you need that in the future.'”
Toomey, who has announced that he will not run for re-election in 2022, said he was ready to allow the Fed to restore far-reaching loan programs should economic conditions deteriorate in the future.
“If we go back to a terrible circumstance next year or 10 years from now, and the Fed and Treasury come together and say, ‘Hey, this is the kind of facility we need.’ I would support that in the right circumstances. ” Toomey said. “But it shouldn’t be some sort of permanent means that some politicians can use to decide, ‘Let’s do this and start making subsidized loans.'”
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