Key lawmaker at center of spending bill debate demands Fed end asset purchases

Senator Joe Manchin has said he will strike a deal with his own Democratic Party on a spending bill, but only if the Federal Reserve begins to withdraw monetary stimulus to the economy.

In an agreement signed with Senate Majority Leader Chuck Schumer (DN.Y.), Manchin said he would only support a budget resolution with $ 1.5 trillion in revenue, without any funds. in the new disbursement legislation primarily related to COVID federal spending is exhausted.

Another condition: the “Federal Reserve puts an end to quantitative easing”, in reference to the central bank’s efforts to support the economy through asset purchases. Thanks to QE, the Fed currently buys about $ 120 billion per month in U.S. Treasuries and agency mortgage-backed securities.

WASHINGTON, DC – SEPTEMBER 30: Senator Joe Manchin (D-WV) speaks to reporters outside the United States Capitol on September 30, 2021 in Washington, DC. The Senate is expected to pass a short-term spending bill to avoid a government shutdown. (Photo by Kevin Dietsch / Getty Images)

Politico first flagged the deal, which was dated July 28, 2021 but has been circulating in recent days to reiterate Manchin’s stance on the spending debate.

Manchin has been obsessed with the Fed’s easy monetary policies as inflation numbers surged over the summer. In August, Manchin wrote a letter to Fed Chairman Jerome Powell, attributing the pace of the price hike to the Fed’s asset purchases.

“I am deeply concerned that the continued stimulus proposed by the Fed and the proposed additional fiscal stimulus will lead to overheating of our economy and inevitable inflationary taxes that hard-working Americans cannot afford,” Manchin wrote.

Manchin’s concerns about QE date back to 2013, when he voted against the appointment of Janet Yellen as Fed chairman on the grounds that she did not support “a limit or a desire to roll back” the post QE program. -financial crisis.

It’s unclear how Congress would go about forcing the Fed to start slowing its quantitative easing program, but any effort to do so could be moot given the central bank’s message that it will likely announce. his intention to do so in a little over a month. .

Fed officials have been hinting for months about a “cutback” in its quantitative easing program, and Powell said on September 22 that an official announcement could come as early as the first week of November.

“These are not things we control”

Manchin has linked his concerns about QE to his desire for an expense bill with a lower price than what his more progressive colleagues aspire to.

“My turnover was $ 1.5 [trillion] because I believe in my heart that what we can do and with the needs that we have right now and what we can afford to do without fundamentally changing our whole society towards a mindset of rights, ”Manchin said Thursday.

Although Manchin pointed out that inflation was a consequence of pandemic-era government spending and the Fed’s money printing, the Fed itself attributed high inflation readings to “transient” factors. An example: a shortage of chips that limited the production of new cars and contributed to the soaring prices of used cars.

“These are not things that we control,” Fed Chairman Jerome Powell told Congress in testimony on Thursday. “We don’t control the semiconductor supply.

Manchin’s comments come as lawmakers simultaneously attempt to deal with a tightening of the debt ceiling that could see the Treasury running out of money to pay government bills. US Treasury, which has had to resort to “extraordinary measures” as debt ceiling ties its hands on new debt issuance, estimates it could miss payments to US debt holders by October 18 .

For a Senate split 50-50 between Democrats and Republicans, Manchin’s vote is essential for the White House.

But the administration has maintained that it is essential that Congress act quickly.

“It would be catastrophic for the economy and for individual families,” Treasury Secretary Janet Yellen told Congress, alongside Powell. She said Social Security payments and paychecks to the military could be delayed after October 18.

Brian Cheung is a reporter covering Fed, Economics and Banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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