Jan 14, 2021 - Economy

Rep. Ro Khanna calls on the Fed to reexamine its policies

Screenshot of an Axios virtual event, Axios' Dion Rabouin is on the left screen and Rep. Ro Khanna is on the right screen

Photo: Axios screenshot

Rep. Ro Khanna (D-Calif.) laid out a few specific policies he and some of Congress' other leading progressives are likely to demand when the next U.S. Congress begins its term.

The big picture: Khanna wants Congress to deliver more direct aid to Americans in the form of $2,000 monthly checks and to provide $1 trillion over 10 years in loans and grants to small businesses but is also taking aim at the Fed, arguing that the central bank has gone astray of its original intent to help small businesses and community banks.

  • "It's a quirk of our system that the Fed has chosen only to lend to financial institutions or large corporations," Khanna told me during Axios' Recovery and Resilience After COVID-19 event Wednesday.
  • "They could easily distribute that money [to small businesses]. In my view, that was the original intention of the Fed and Congress should clarify that."

And it's not just a matter of chastising the Fed, Khanna says. "We need to give the Fed more explicit authority to [reexamine] how they have been lending and make sure lending isn't concentrated just to financial institutions and large corporations, that they're using their regional banks to be regional economic development banks considering rural and minority communities."

Why it matters: Khanna (D-Calif.) sits on the House budget committee and the committee on oversight and reform and is seen as something of a leading voice for progressive Democrats.

  • His view that the Fed needs to change the way it operates is one that is gaining traction among popular and powerful members of Congress.

Between the lines: Khanna's calls for the Fed to reorient its lending structure as a way to counter the trend of growing wealth inequality echoes San Francisco Fed president Mary Daly who in December called for the Fed to "think outside of the traditional banking box."

  • "This could mean developing firmer partnerships with Community Development Financial Institutions and other nonprofit or small-dollar lenders."

Why you'll hear about this again: "The concentration of capital is part of what has left communities behind," Khanna said.

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