Pat Toomey and the Fed’s mission creep

WASHINGTON » If you believe, sensibly, that Congress’ diminished -- mostly self- diminished -- role in governance is regrettable, you should regret that Sen. Pat Toomey is leaving the Senate in 2022, upon completion of his second term. Last week, the Pennsylvania Republican showed why he will be missed in an institution that has too few members concerned about its waning relevance.

In the end- of-session rush to produce more pandemic relief, Toomey forced attention to the Federal Reserve’s extraordinary mission creep, which seems certain to continue, and to exacerbate the eclipse of Congress. In the process, Toomey accomplished something unusual: the termination of a “tempo

Corporations, too, wish the Fed’s subsidized loans could flow forever. Never mind that the essence of socialism is government allocation of society’s barary” federal program. ing the Fed’s lending proing to demonstrate an insic economic resource:

Last March, when gram, they could achieve ability to get credit elsecapital. Which means govToomey was one of the two goals unrelated to the where. As Toomey says, ernment allocation of opRepublicans negotiatpandemic: the Fed would not be, as portunity. Which means ing the Senate’s version of First, they could bail out intended in March, the the bitter politics of highthe Cares Act’s emergency Democratic-run states and “lender of last resort” but stakes distributional conlending provisions, the municipalities ict.that,longwouldbethelenderoffirstfl first large pandemic reliefw before the pandemic, were resort, forever. hile Toomey was respackage, there was reasonfiscal wrecks, largely beThis, even though the cuing the Fed from an esable fear that capital marcause their alliances with fiscal crisis ended many sentially political role, the kets would freeze catagovernment-employee months ago. Fed was embracing anstrophically. unions have produced If such a crisis recurs, other, potentially enor

So, the Fed was given crushing pension and the Fed can come back to mous one: It joined the unprecedented authority other obligations. Congress -- imagine: inNetwork of Central Banks to make subsidized loans Second, Democrats envivolving itself in governing and Supervisors for Greento states, municipalities sioned the Fed as an open-- for renewal of the lending the Financial System. and corporations. Toomey ended and almost unliming program. Until 1977, the Fed’s sought a Sept. 30 terminaited source of money to Meanwhile, and in the mandate was price stabiltion of this program, and achieve public-sector and wake of $500 billion made ity (preserving the cursettled for Dec. 31. private-sector goals they available to states, municrency as a store of value).

The program’s purcould not achieve through ipalities and corporations Since then, the “dual manpose was to restore norCongress. Democrats were in March, moral hazard -date” had included promomal functioning in private practicing Emanuelism. incentivizing perverse betion of maximum sustaincapital markets, not to be (Rahm Emanuel: “You havior -- would flourish. able employment. an ongoing, all-purpose never want a serious crisis Toomey notes that New Now, however, the Fed means for the Fed to set to go to waste.” Because Jersey, which has been ecwill somehow 1) anticipate the nation’s fiscal policy. it is an “opportunity to do onomically battered by long-term climate change

This autumn, however, things that you think you pandemic-related eco(even though in 2007 it did armed with a legal intercould not do before.”) nomic shutdowns, nevernot anticipate the 2008 fipretation that the deadline So, the House passed a theless just increased govnancial crisis) and 2) diwas not binding, Demobill commanding the Fed ernment spending 4%. All vine how this will affect crats sought to exploit the to make essentially interstate politicians would the financial system and, pandemic as a political opest-free loans (10 years at prefer to rely not on their inevitably, 3) consider how portunity. 0.25% interest) to municistates’ taxing authority to affect the climate by

By indefinitely extend- palities without their hav- but on the Fed. considering corporations’ climate-relevant behavior before buying corporate debt.

Presumably the Fed will ponder, for example, the probability of financial institutions’ asset prices changing because of severe weather events. The Fed’s ability to know these things is between negligible and nonexistent. But the Fed’s temptation to use its lending to dictate climate-friendly behavior to borrowers, and the political pressure from Congress to do so, will be between strong and irresistible.

The Fed will discover that it cannot remain independent of what it has waded waist- deep into: politics. And Congress will be content to slough off yet another policy responsibility.

Toomey’s 2022 departure from Capitol Hill is yet another instance of a depressing phenomenon: Those who are least inclined to stay in Congress are often those who could do the most to contribute to its revival.