Republicans Will Keep Trying to Limit Fed’s Emergency Loan Power

A last-minute compromise that helped break a monthslong congressional impasse on Covid-19 relief may set up a political clash over how the Federal Reserve can respond to future crises.

The disagreement between Democrats and Republicans centered on a bit of central banking arcana known as Section 13(3) of the Federal Reserve Act. It allows the Fed to create emergency lending programs during “unusual and exigent circumstances,” with approval from the Treasury Department. The provision was invoked by Fed Chair Jerome Powell and his colleagues in the spring to launch a barrage of programs to shore up markets for everything from U.S. government bonds to the debt of corporations and strapped municipalities. Some of them relied on funds appropriated by Congress in the Cares Act to function as a cushion against potential losses.