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GOP Sen. Pat Toomey Explains Why He Fought to End Emergency Fed Lending Programs in Covid Bill

Sen. Pat Toomey, R-Pa., is seen in the basement of the Capitol before a Senate vote on Tuesday, September 22, 2020.
Tom Williams | CQ-Roll Call, Inc. | Getty Images
  • "These are unprecedented, extraordinary powers, and they're only justifiable in a real emergency," Republican Sen. Patrick Toomey told CNBC.
  • Toomey said he would support the Federal Reserve establishing wide-ranging lending programs should an economic crisis arise again.
  • "My concern was there would be tremendous political pressure to misuse these," Toomey said.

Sen. Patrick Toomey, R-Pa., defended on Monday his opposition to extending emergency Federal Reserve lending programs, which had emerged as a last-minute sticking point in coronavirus stimulus negotiations.

A deal over the weekend was eventually reached around the Fed's lending powers, paving the way for an agreement on the larger, $900 billion relief package. Congress was set to vote on the bill Monday.

Democrats had worried that Toomey's original proposal would prevent the Fed from adequately responding to future crises.

In an interview on CNBC's "Squawk Box," Toomey said he fully supported the wide-ranging credit programs launched by the central bank in March in response to the burgeoning pandemic. But he contended that they should be wound down at the end of December and congressional approval must be required again before restarting them.

"These are unprecedented, extraordinary powers, and they're only justifiable in a real emergency," Toomey told CNBC. "The Fed recognized that. They came to Congress back in March and said, 'This is what we'd like to do. Will you fund it?' And then they set them up, and I voted for that. I supported that because I thought we were in such an emergency. We are clearly not in a financial crisis at this point."

Rather, Toomey said, the U.S. economy was recovering well from the pandemic except for a few sectors, such as travel and hospitality. For that reason, Toomey said economic assistance programs should be more targeted.

Some Democrats had criticized Toomey's initial stance toward the Fed, suggesting he and other Republicans were attempting to limit the tools available for President-elect Joe Biden's administration once it takes over in January. Toomey said he was fighting to ensure the central bank stayed in its lane of monetary policy.

Toomey spokesman Steve Kelly told Reuters the senator's agreement with Democrats "rescinds more than $429 billion in unused CARES Act funds; definitively ends the CARES Act lending facilities by December 31, 2020; stops these facilities from being restarted; and forbids them from being duplicated without congressional approval." A senior Democratic aide said, according to Reuters, that Toomey had agreed to "drop the broad language in his proposal that would have prevented the Fed chair from establishing similar facilities in the future."

On CNBC, Toomey said: "My concern was there would be tremendous political pressure to misuse these, to morph these liquidity facilities that had successfully restored market liquidity and turn them into an instrument of fiscal policy, which is a terrible idea."

Treasury Secretary Steven Mnuchin told CNBC he believes Democrats and Republicans struck "a very good compromise" around the Fed's emergency lending powers. "This is no different than after the financial crisis in Dodd-Frank," he said Monday on "Squawk on the Street," referring to the 2010 law that regulated financial institutions. "The Fed used to be able to lend directly to any one company and Congress said, 'No. We want you to come back if you need that in the future.'"

Toomey, who serves on the Senate's Finance, Budget and Banking committees and has indicated he will not run for reelection in 2022, said he would be willing to allow the Fed to reestablish wide-ranging lending programs should economic conditions deteriorate.

"If we get back to a terrible circumstance next year or 10 years from now and the Fed and the Treasury come together and say, 'Hey, this is the kind of facility we need,' I would support that under the right circumstances," Toomey said. "But it shouldn't be a sort of permanent vehicle that's there for some politicians to decide, 'Let's take this over and start doing subsidized loans.'"

Toomey also said he agreed with the decision to keep direct aid for state and local governments out of the $900 billion relief package. The March relief bill included funding to help with costs of responding to the health crisis. 

"It's not obvious to me why this ought to happen at the federal level … after we've already done hundreds of billions of dollars for states and municipalities," Toomey said. "I think given the disparity and how different states spend money and how they tax their citizens, it's probably at this point, and given all the money we already paid for, probably better not to have yet another round of direct payments to states and municipalities."

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