By John Suggs, RBFL Student Editor<\/p>\n
Jerome Powell, Chair of the Federal Reserve\u2019s Board of Governors, has previously said that \u201cthe Fed has lending powers, not spending powers.\u201d\u00a0 Yet, this contrast between monetary and fiscal policy has become much less stark in the face of the Fed\u2019s emergency lending programs under section 13(3) of the Federal Reserve Act.\u00a0 Recently, COVID-19 has caused economic crisis on a scale not seen since 2008, prompting quick action by both Congress and the Federal Reserve to ease the resulting woes.\u00a0 However, the CARES Act and a myriad of ad hoc lending facilities established under section 13(3) authority have led the Federal Reserve into a brand of lending which looks very similar to fiscal policy, raising potential questions about constitutionality.<\/p>\n
The CARES Act, passed in March 2020, appropriated Treasury funds to back potential losses which the Fed might face in employing emergency lending to stimulate the economy.\u00a0 This \u201cinvestment\u201d of $454 billion into Fed lending, places Treasury funds at the peril of first loss, allowing the Federal Reserve to worry less about insulating taxpayers from losses as Dodd-Frank revisions to the Federal Reserve Act require.\u00a0 As such, the Fed has been encouraged to engage in riskier and more broad-based lending, backed by Treasury money.\u00a0 Given the congressional go-ahead, the Fed established, among other programs, the Municipal Liquidity Facility to lend to states and municipalities, Main Street Loan Facilities to lend to medium sized businesses, and Market Corporate Credit Facilities to lend to large businesses, all backed by billions in Treasury funds.<\/p>\n
These facilities and the backing of the Treasury place the Fed in a territory which, to some, feels uncomfortably close to fiscal policy.\u00a0 Generally, the Fed is limited in its operations to either lend money or invest in assets.\u00a0 When the Fed begins to be able to make unilateral decisions about risky lending with likely losses being covered by the Treasury, the line between spending and lending seems lost.\u00a0 This is especially true as risky lending is made available directly to states, a mode of dissemination traditionally left to congressional spending.\u00a0 While there is little that court precedent can tell us about the legal difference between spending and lending, if these actions are rightly considered \u201cspending,\u201d potential constitutional issues ensue.<\/p>\n
As the Federal Reserve is an arm of the executive, and as spending is granted expressly and exclusively to the legislature, the Separation of Powers and Nondelegation Doctrines would apply to grants of spending to the Federal Reserve.\u00a0 Thus, the legality of Fed spending would depend on the presence of an \u201cintelligible principle\u201d which limits it.\u00a0 When looking to limiting principles, either in the CARES Act or section 13(3) of the Federal Reserve Act, there is very little guidance to govern the Fed\u2019s decisions.\u00a0 Riskier lending programs, and loans within these programs, are made according to the Fed\u2019s discretion, limited potentially only by its Treasury investment, post hoc congressional oversight, and the general aim of providing liquidity to financial markets.\u00a0 This seems unlikely to meet even the relatively lax standards of the Nondelegation Doctrine, and could potentially be considered an unconstitutional grant of legislative power.<\/p>\n
Emergencies like COVID-19, while they rightly lead to a call for compassion and pragmatism, cannot be a cause for ignoring important constitutional principles like the Separation of Powers.\u00a0 While it is unclear whether the Fed\u2019s current actions are truly fiscal in nature, an inquiry into its legitimacy is vital for preventing a larger existential crisis in the rush to cure the ails of COVID-19 and its ilk.\u00a0 Prior to the popularization of section 13(3) emergency lending in recent decades, it was feared that this authority might be a \u201cticking time bomb of political chicanery.\u201d\u00a0 However, if it is allowed to threaten the delicate balance of power in American government, the result could be far worse.<\/p>\n
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By John Suggs, RBFL Student Editor Jerome Powell, Chair of the Federal Reserve\u2019s Board of Governors, has previously said that \u201cthe Fed has lending powers, not spending powers.\u201d\u00a0 Yet, this contrast between monetary and fiscal policy has become much less stark in the face of the Fed\u2019s emergency lending programs under section 13(3) of the […]<\/p>\n","protected":false},"author":17548,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[6],"tags":[],"_links":{"self":[{"href":"https:\/\/www.bu.edu\/rbfl\/wp-json\/wp\/v2\/posts\/1324"}],"collection":[{"href":"https:\/\/www.bu.edu\/rbfl\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bu.edu\/rbfl\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bu.edu\/rbfl\/wp-json\/wp\/v2\/users\/17548"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bu.edu\/rbfl\/wp-json\/wp\/v2\/comments?post=1324"}],"version-history":[{"count":1,"href":"https:\/\/www.bu.edu\/rbfl\/wp-json\/wp\/v2\/posts\/1324\/revisions"}],"predecessor-version":[{"id":1325,"href":"https:\/\/www.bu.edu\/rbfl\/wp-json\/wp\/v2\/posts\/1324\/revisions\/1325"}],"wp:attachment":[{"href":"https:\/\/www.bu.edu\/rbfl\/wp-json\/wp\/v2\/media?parent=1324"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bu.edu\/rbfl\/wp-json\/wp\/v2\/categories?post=1324"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bu.edu\/rbfl\/wp-json\/wp\/v2\/tags?post=1324"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}