Toomey: Congress, Federal Reserve Must Resist Urge to Permanently Expand Size of Fed. Govt.
Washington, D.C. – U.S. Senate Banking Committee Ranking Member Pat Toomey (R-Pa.) today cautioned against Congress using this pandemic as an excuse to permanently increase the size and role of the federal government. He also cautioned against the Federal Reserve’s continuing purchases of government debt.
In
his opening statement during today’s Senate Banking Committee hearing with
Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell,
Senator Toomey argued that the economy is well on its way to a complete
recovery. Further expansion of the size and role of government will lead to
reduced productivity and diminished economic growth, which in turn would mean a
lower standard of living for all Americans.
Ranking
Member Toomey’s opening remarks, as prepared for delivery:
Thank
you Mr. Chairman. And thank you to Chair Powell and Secretary Yellen for
appearing today.
A
year ago, our economy and markets were roiled by the COVID-19 pandemic and
government ordered business shutdowns. We saw extraordinary turmoil in credit
markets that threatened the ability of households, businesses, states, and
municipalities to obtain credit. This turmoil presented the very real threat of
a full-blown depression that could have taken years to recover from.
In
response, Congress passed the CARES Act to provide temporary relief to help the
country weather a temporary storm. It was an extraordinary response to an
extraordinary situation. Thankfully, it proved effective and we are now well on
the way to a complete recovery. The vaccine is being administered at a rate of
over 2 million doses a day, states are reopening, and GDP is set to reach
pre-pandemic levels as soon as this month—far earlier than CBO or the Fed
originally projected.
The
economy has been in full recovery mode since last summer when we saw 38% GDP
growth in the third quarter—well before Democrats enacted a $2 trillion
spending blowout that had little to do with COVID. Needless to say, we have
weathered the storm and the skies are clearing.
Congress must not use this pandemic as an
excuse to permanently increase the size and the role of the federal government.
Congress certainly made this clear for the CARES Act’s emergency lending
facilities. These facilities were established to stabilize turbulent credit
markets so households, businesses, states, and municipalities could access
credit. Congress’s intent was clear—facilities funded by the CARES Act were to
be temporary, to provide liquidity, and to cease operations no later than the
end of 2020. These facilities were extremely successful in achieving their
intended purpose. In the December COVID relief bill, Congress ensured these
facilities were wound-down by year-end, as Congress intended and the law
required, and they cannot be restarted or replicated in the future without
congressional approval.
In
addition to Congress’s swift response, the Fed’s response last spring was
significant, and played a crucial role in our ongoing economic recovery. But as
is the case with Congress, the Fed must fight the urge to continue this
response beyond its original purpose.
Last
March, the Fed lowered interest rates to nearly zero, and initiated a record
expansion of its balance sheet. This accommodation has remained, and by both
official forecasts and market expectations, will continue well beyond the point
of full recovery. This raises two concerns.
The
first concern is that the Fed’s increased footprint is a permanent feature. If
this is the case, and there’s no eventual reduction in the size of its
portfolio, the Fed’s quantitative easing to date would amount to a monetization
of government debt. I truly hope that this is not the case.
The
second concern is that such an accommodative stance leaves our economy
vulnerable to inflation. The Fed has signaled that its dovish monetary policy
is here indefinitely. Its March Summary of Economic Projections does not
forecast any rate hikes until 2024 at the earliest, and the Fed appears to have
no plans of reducing its pace of monthly purchases.
Given the current economic recovery and
recent increases in commodity prices, inflation expectations, and Fed
communications, I worry that the Fed will be behind the curve when inflation
picks up.
A
final point and a warning. It’s been pointed out that very little of the
Democrats’ recent $2 trillion spending bill had anything to do with COVID. It
was a mad dash to claim credit for a recovery well underway, and authorize as
much money as possible to try to fundamentally remake our society to be one
where the State is at the center of life for many more Americans.
This
partisan, bloated spending bill contained: stimulus checks for people with
six-figure salaries who had no loss of income; expanded welfare benefits that
eliminate incentives to work and minimize personal responsibility;
“reparations”—as the Chairwoman of the Senate Ag Committee called a loan
forgiveness program based on race and ethnicity; bailouts for chronically
mismanaged states and cities, despite record revenues and half a trillion in already
provisioned federal aid; and a plus-up in
unemployment insurance that pays people more not to work than to work.
In
the long run, this bill will reduce productivity and diminish economic growth,
which in turn means a lower standard of living for all Americans. And it will
exacerbate societal fractures. Fewer people will be paying taxes to support an
ever-growing government, and those who do work will increasingly resent those
who choose not to and enjoy the same standard of living. It’s unhealthy for the
body politic, for our economy, and for our society writ large.
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