Connect with us

Hi, what are you looking for?

Economy

Fed faces ill political winds as Biden prepares for White House

THE US CONGRESS’ rapid response to the coronavirus pandemic in March was meant to unleash a $4 trillion fire hose of credit for a stricken economy, distributed broadly by the Federal Reserve to help firms and markets survive a once-in-a-century collapse.

But US Treasury Secretary Steven Mnuchin’s decision on Thursday to end some of the US central bank’s core pandemic programs at the end of this year marked a return to more longstanding concerns among Republicans about the Fed’s influence over and reach into the economy, just as Democratic President-elect Joe Biden prepares to move into the White House.

The emergency lending facilities slated for the scrap heap were among the most novel and controversial established last spring at the urging of lawmakers from both sides of the aisle in Washington.

The shuttering of the programs, which many analysts have credited for helping to blunt the economic pain of the pandemic, will push the Fed back behind a line many in the Republican party feel it never should have crossed.

And it’s a sign of the colder climate facing the central bank in the aftermath of the Nov. 3 presidential election, one that will test the relationships with lawmakers that Fed Chair Jerome Powell has worked hard to build in his first three years in the job.

“I expect there will now suddenly be Senate Republicans who suddenly criticize the Fed for credit market actions which both proved highly effective this year and had their support up until the election,” says Adam Posen, a former Bank of England policymaker who is now president of the Peterson Institute for International Economics in Washington.

“I would expect attacking the Fed for doing its job will play into right-wing conspiracy theories and risk damage to the institution.”

OLD CONCERNS ANEW
During much of President Donald Trump’s administration, Powell’s assiduous attention to cementing relationships on Capitol Hill appeared to pay off, insulating him from a hot-tempered president who installed him and later regretted it.

Powell’s monthly meeting calendars showed him blitzing the offices of members from both parties, and those interactions continued in virtual fashion this year after the coronavirus outbreak sidelined face-to-face visits.

Criticism of the Fed from lawmakers was fairly muted, even as Trump lashed out repeatedly and publicly at the central bank’s “boneheads” for not easing monetary policy as fast as he wanted. The Fed earlier this year cut interest rates to near zero and ramped up its bond-buying to bolster the economy.

Republicans, who control the Senate, also declined to ratify a string of Trump’s controversial picks to fill vacant seats at the central bank’s policymaking table.

Once the coronavirus crisis hit, they seemed willing to defer their concerns about the Fed’s growing balance sheet — now well above $7 trillion, and much larger than during the Obama administration, when Republicans took the Fed to task over its bond-buying after the 2007-2009 Great Recession.

And they expressed little concern as Fed policymakers have flagged their plans to begin to incorporate climate change risks into the central bank’s supervisory and monetary policymaking, or when Powell in August announced a new policy strategy that would aim for an inclusive definition of full employment.

Since the election, things have taken a turn.

Earlier this week, Senate Majority Leader Mitch McConnell called for a vote that would have paved the way for confirming Judy Shelton, a frequent Fed critic who was an economic adviser to Trump’s 2016 presidential campaign, to a post on the central bank’s Board of Governors.

Though a few Republicans opposed her, the bid ultimately failed because of the absence of a pair of supportive Republican senators who had to go into quarantine due to exposure to COVID-19.

IRKED BY NEW PRIORITIES
Shelton’s confirmation now appears to be a long-shot. But the stage may be set for sharper criticism of the Fed by lawmakers, just as coronavirus cases and hospitalizations surge and cities and states impose new restrictions, potentially stalling the economic recovery or even sending it into a renewed downturn in coming months.

At the libertarian Cato Institute this week, former Republican lawmakers said it was time for Congress to review just what the Fed is up to in delving into areas beyond fighting inflation and too-high employment with interest rates.

“All of sudden now we have a Fed opining on climate change, we have a Fed opining on income inequality,” said Jeb Hensarling, a former chair of the House of Representatives Financial Services Committee who often sparred with Fed officials. “Each of these steps lead to a more politicized Fed, which means by definition it is a less independent Fed.”

James Dorn, Cato’s vice president for monetary studies, also warned about mission creep.

“Instead of engaging in pure monetary policy, now they are moving into these other areas and are allocating credit,” he said.

During the current crisis, Mnuchin worked closely with Powell to establish the Fed’s emergency lending facilities, at times speaking many times a day as the two men hammered out details.

Ultimately, the programs used only a fraction of the $454 billion given to Treasury, and Mnuchin now says ending them simply carried out lawmakers’ intent and is “not a political issue.”

The Fed felt the programs provided psychological support for markets, and that will now be tested in corporate bond and other markets. — Reuters

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Get the daily email that makes reading the news actually enjoyable. Stay informed and entertained, for free.
Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!

Latest

Economy

SEOUL — North Korea fired a submarine-launched ballistic missile (SLBM) from off its east coast on Tuesday, South Korea’s military said, pulling Japan’s new...

Economy

TOKYO — Japan’s lack of a vaccination passport and limited testing capacity is threatening ambitions to reopen the economy at a crucial year-end period...

Investing

Purbeck Personal Guarantee Insurance has spoken to SME business owners and directors and set out what it believes are an Autumn 2021 Budget wish-list to...

Economy

Among 10 countries in the Asia-Pacific region, the Philippines saw the most remarkable change in e-cash adaptation during this pandemic. A survey conducted by...

Economy

(Part 4) We have the potential to become an advanced economy by the year 2050. Our strong fundamentals create the opportunity for us to...

Economy

IN ITS RECENT Regional Economic Outlook (REO), the IMF notes that the COVID-19 pandemic has taken a turn for the worse in Asia since...

You May Also Like

Investing

Having a good Instagram marketing agency to back up your Instagram account is an absolute must going into the new year. With competition stronger...

Economy

Ivermectin, an existing drug against parasites including head lice, has had a checkered history when it comes to treating COVID-19. The bulk of studies...

Investing

As a traditionally rigid insurance industry becomes bogged down by antiquated processes and operations, a handful of industry leaders are seeking to shake things...

Economy

Pfizer Inc on Wednesday raised its 2021 sales forecast for its COVID-19 vaccine by 29% to $33.5 billion, and said it believes people will...

Disclaimer: SmartRetirementReport.com, its managers, its employees, and assigns (collectively "The Company") do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

Copyright © 2021 SmartRetirementReport. All Rights Reserved.

Get the daily email that makes reading the news actually enjoyable. Stay informed and entertained, for free.



Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!