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 tension 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, 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 the Fed’s Main Street Lending Program, which was set up to help struggling small and midsize businesses and which expires on December 31.
Maxine Waters, the chair of the House financial services committee, and Richard Neal, the chair of the House ways and means committee, issued a joint statement lambasting Mr Toomey’s move. “Senate Republicans’ extreme demand threatens to derail this urgently needed action, and it must be immediately abandoned so that we can move forward,” they said.
“Proposals to sabotage President Biden and our nation’s economy are reckless, they’re wrong, and they have no place in this legislation,” Elizabeth Warren, the Massachusetts senator, 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.
“The language Senate Republicans are advocating for affects a very narrow universe of lending facilities and is emphatically not a broad overhaul of the Federal Reserve’s emergency lending authority,” Mr Toomey said on Friday, defending his plan.
Larry Kudlow, Donald Trump’s top economic adviser, said the White House strongly backed his position, as did other Republican colleagues.
John Cornyn, the Texas Republican senator, added on Twitter that the provision “would just force accountability and consensus rather than allow unilateral action” while Tom Cotton, the Arkansas senator, said that “Democrats are mad because they want to use the Fed as a slush fund”.
The future 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 meant negotiations are now expected to continue into the weekend. Lawmakers had hoped to clinch a deal before the Friday night expiration of a deadline to avoid a government shutdown, so the House of Representatives was forced to approve a stopgap bill to extend government funding by two more days until Sunday.
The Senate later also passed the measure and it was signed into law by President Trump on Friday night.