Gina Smiley
Appearances
Planet Money
A primer on the Federal Reserve's independence
Right. This is the morning that the Fed rolls out a bunch of details on several market rescue programs that it is setting up that it has never set up before. And then Jerome Powell goes on a webcast with the Brookings Institution and the host of it says, you know, what are the limitations here? You know, what are you capable of? And Chair Powell replies.
Planet Money
A primer on the Federal Reserve's independence
There's no limit. And I think that's kind of a mic drop when it comes to the world of central banking, because he's basically saying that here at the Fed, we have this ability to sort of at least temporarily print money out of thin air. And we can use that to really safeguard every important market.
Planet Money
A primer on the Federal Reserve's independence
So if you had a Federal Reserve that was super linked up with politicians who are worried about re-election, they might really not focus on the inflation side of their mandate.
Planet Money
A primer on the Federal Reserve's independence
Yeah. So Chair Powell will often say things like this is a matter for Congress to decide. This is a matter for politicians to decide. The great example of how Chair Powell was really trying to keep the Fed limited and within its lane. You know, there had been some appetite on the Hill to see the Fed get into municipal lending leading up to the pandemic.
Planet Money
A primer on the Federal Reserve's independence
You know, we saw some Democrats saying back when the financial crisis hit, banks got bailed out. But, you know, Detroit didn't get bailed out.
Planet Money
A primer on the Federal Reserve's independence
I think it's easy to forget now, but at the same time that we were all trying to figure out how to do work from home and how to adjust to maybe some job losses in our families and those kinds of challenges, the markets were trying to adjust to a world where we didn't know if people would ever come back to offices. And we didn't know which government debt was going to be safe.
Planet Money
A primer on the Federal Reserve's independence
And what this resulted in was just a run for the exits. People wanted cash. They thought cash was the only thing that was safe. And they were selling everything else. And so we saw huge breakdowns across a whole range of markets that usually are very safe. And this is the kind of thing that's going to hit not just Wall Street, but almost certainly Main Street if it continues.
Planet Money
A primer on the Federal Reserve's independence
Yeah. And I think sometimes you change your mind when not changing your mind is going to cause the worst problem.
Planet Money
A primer on the Federal Reserve's independence
So we get to March 23rd, 2020, and we see the Fed jump into a bunch of markets that it hasn't previously touched. It rolled out a corporate bond buying program and a program that was sort of promising to help out Main Street companies.
Planet Money
A primer on the Federal Reserve's independence
Yeah. And I describe this in my book as somebody described it to me, which is it was really about covering the waterfront. They wanted to make sure that they were trying to service sort of every place that you might see borrowing and lending break down in the economy.
Planet Money
A primer on the Federal Reserve's independence
It's pretty unusual. You know, the Fed chairs tend to stick to the more sort of business oriented publications and TV shows. I think they were trying to reassure the country that they were really bringing out the big guns.
Planet Money
A primer on the Federal Reserve's independence
So April 9th, 2020 rolls around and the Fed rolls out a big new package that includes a municipal lending program. And it also adds in junk bonds to the Fed's bond purchase program. And those are two pretty uncomfortable things for the Fed to do. The Fed has
Planet Money
A primer on the Federal Reserve's independence
openly said that it doesn't want to be involved in the municipal bond market and you know the junk bond market is also pretty unattractive because it's this big market of people who took on in some cases a pretty significant amount of risk and no central bank wants to feel like they're bailing out the junk bond market but the concern is you know these are big companies
Planet Money
A primer on the Federal Reserve's independence
If you leave this market completely closed, you know, if it fails to operate the way it should, if it becomes impossible for people to issue debt at rates that they can afford to manage to stay in business, you could have a huge round of layoffs just because this market is flailing.
Planet Money
A primer on the Federal Reserve's independence
Yeah. So what he's saying basically here is, dear Congress, we're trying to help people, but people need money to keep their businesses open or money to make up for the fact that they're not going to work, etc. And we've just had the CARES Act pass, but the CARES Act was always meant to be pretty short term. And this is Jerome Powell being clear that like the Fed cannot solve every problem here.