The Fed Needs More Emergency Powers, Not Less

The pandemic relief deal that Congress struck this week is long overdue. Unfortunately, the package includes a provision that threatens to make this and future crises worse — by limiting the emergency powers of the Federal Reserve.

At issue is Section 13(3) of the Federal Reserve Act, which grants the central bank broad powers to make loans and otherwise keep money flowing in “unusual and exigent circumstances.” Added to the central bank’s arsenal amid the Great Depression, the authority has proved invaluable in recent decades. During the 2008 financial crisis, it allowed the Fed to head off a deeper recession by providing support to institutions ranging from investment banks to money-market mutual funds. When the pandemic hit, the central bank went even further — offering direct credit to companies and municipalities — to try to ensure that a cash crunch wouldn’t add to the economic damage.