FARM-TO-TABLE COMPANIES NOW FARM-TO-PUBLIC

Federal Reserve chair and treasury secretary in nearconstant contact

WASHINGTON» On March 15, as economic devastation from the coronavirus showed no signs of abating, Jerome Powell, the Federal Reserve chairman, aimed the full weight of the central bank against the problem.

Powell and his colleagues cut interest rates to near zero in an emergency Sunday night move, while also rolling out a huge program to snap up governmentbacked debt and sweetening agreements meant to keep dollars available overseas.

It wasn’t enough. Financial markets plummeted the next morning, with panicked investors fearing that the Fed’s actions, which used almost every tool the central bank had at its unilateral disposal, would fail to stabilize the economy.

They clamored for Powell to turn on the central bank’s emergency lending authorities, through which it could soothe dysfunctional markets. But those programs, which were used in the 2008 financial crisis, had since become more difficult to activate. The 2010 Dodd-frank law now required the treasury secretary, Steven Mnuchin, to sign off on any Fed lending facility.

Powell’s relationship with Mnuchin — a comfortable friendship forged over weekly breakfasts and similar backgrounds in finance — suddenly morphed into a vital partnership.

Mnuchin, who had been in nearconstant contact with Powell as markets bled, agreed that the Fed ought to use its emergency lending authorities. By the time the authorization forms arrived at the Treasury Department for Mnuchin’s signature, it was a formality.

On March 17, the Fed and Treasury announced that Mnuchin’s department would back the first $10 billion in losses on a new emergency lending program, an intervention meant to keep shortterm loans available to companies newly desperate for financing.

The coronavirus poses the most significant economic threat since at least 2008, thrusting Mnuchin and Powell into key roles in determining whether the U.S. economy

suffers a short, manageable slowdown or enters a deep and painful recession.

The $2 trillion stimulus package that President Donald Trump signed in March hands a huge pot of taxpayer money — $500 billion — to Mnuchin. The bulk of that will back the Fed’s emergency lending programs, which are aimed at ensuring that credit continues flowing, enabling businesses to stay afloat, workers to keep their jobs, and the economy to snap back once the virus subsides, quarantines are lifted and American life restarts.

Economists are now predicting a severe slowdown, with growth contracting sharply and a rise in unemployment that could reach 15% by midyear. Mnuchin and Powell’s efforts are critical not only to workers and businesses but also to Trump, who has staked much of his reputation and reelection on a climbing stock market and robust economy.

“I wish we could have our old life back. We had the greatest economy that we’ve ever had,” Trump said at a recent White House briefing. “We are bringing our economy back strong like it was before. It is even better than before.”

Mnuchin and Powell have been rapidly deploying resources to try to ensure that rebound happens. Mnuchin worked on details of the new legislation with Congress, pushing for money that could be used to aid companies big and small. Powell and other Fed officials talked with lawmakers about Treasury Department funding to backstop the Fed’s programs.

Mnuchin now has enormous influence in doling out funds to hard-hit industries and small businesses, and the Fed’s emergency lending programs will be pumped up with a $454 billion taxpayer investment.

“It is shaping up as a power move with quite a bit of discretionary and open-ended decision-making authority being consolidated within the Federal Reserve and the secretary of the treasury,” said Sarah Bloom Raskin, a former governor of the Federal Reserve board who was deputy treasury secretary in the Obama administration.

Besides backstopping the Federal Reserve’s lending facilities, the Treasury Department is helping to manage a $350 billion fund that will provide grants and loans primarily to small businesses.

Mnuchin will have leeway over another $46 billion in industry-specific funds that Congress has appropriated to help the airline industry and companies involved in national security. He will be able to decide which businesses are worthy of loans and loan guarantees; when interest should be waived; when restrictions on corporate stock buybacks should be lifted; and whether or not to take an equity stake in a company in exchange for bailing it out.

The power that Powell and Mnuchin have amassed is prompting concerns among some members of Congress and financial reform groups. And while the $46 billion that Mnuchin oversees will be subject to examination by an inspector general, Trump has suggested that he could impede the integrity of that position by determining which information is shared with Congress.

The Fed, which has been monitoring the economic fallout of the virus since January, has tried to keep money flowing to both households and businesses by rolling out additional emergency lending programs. Some smooth over the municipal bond market by accepting local debt — which is issued to build roads and finance schools — as collateral. One will buy newly issued corporate bonds from highly rated companies or make loans to those firms — something the Fed has never tried before.

“The Fed is performing a critical function,” said Ben Bernanke, the former Fed chairman. “It has done a really good job of rolling this out quickly.”