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How Powell and Mnuchin Became the Duo in Charge of Saving the Economy

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The new legislation will allow the central bank to grow the size and scope of its programs and potentially push its boundaries even further. It funnels hundreds of billions into Treasury’s Exchange Stabilization Fund that can be deployed to cover potential losses on the Fed’s loans to businesses, states and municipalities. Legislators have particularly urged the Fed to do more for local governments, something it has shied away from in the past but is now contemplating.

“I know of no other time that a legislature has delegated to a central bank such far-reaching authority to allocate credit,” Kathryn Judge, a professor at Columbia Law School and an expert on financial regulation, said of the program.

Treasury signs off on emergency lending programs and has input on their goals, but the Fed has historically worked out the gritty details and handled implementation, sometimes with the help of outside firms. For instance, a subsidiary of BlackRock, the world’s largest asset manager, is setting up the Fed’s corporate bond buying.

The programs are governed by some rules — they must benefit broad groups, and the Fed will answer to lawmakers for its actions. Businesses that get direct loans backed by the new funding cannot make new plans to buy back stock for a year after the loan is outstanding, though Mr. Mnuchin can waive that provision.

Mr. Mnuchin’s moves will also be watched: The inspector general installed at the Treasury Department will be tasked with monitoring how its loans are used, and a bipartisan congressional oversight panel will be set up to foster accountability.

But some Democrats and financial watchdogs have expressed discomfort at concentrating so much power in the hands of so few people, warning that the lending programs might put the needs of big corporations over workers.

“They can actually lay off workers while receiving public assistance,” Marcus Stanley, the policy director of Americans for Financial Reform, said on Twitter, referring to the Fed’s programs. “Not only that, but the door is open for big corporations to benefit from government cash while turning right around and paying that cash out to wealthy shareholders and executives, at the same time as they lay off workers.”

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