Book Review Trillion-Dollar Triage: How Jay Powell and the Federal Reserve Fought a President and a Pandemic, and Prevented an Economic Disaster by Nick Timiraos

Politicization and public rejection clouded the public health response, resulting tragically in a death toll which exceeds that of the pandemic a century ago. The financial system, however, survived, with the Dow and S&P 500 closing 2020 at historical highs. Saving the financial system kept credit flowing to businesses, allowing them to avoid layoffs and even hire new workers. Both Main Street and Wall Street were the beneficiaries. We have a big thank you to the Fed for these early successes under the leadership of Chairman Jay Powell, who seemed made for the time.

The book’s strength lies in its detailed original report and fast-paced retelling of the harrowing month the Fed spent almost unilaterally preventing financial turnaround. catastrophe as the coronavirus took off in 2020. Embedded in the story is a careful accounting of the economic and financial implications of the Fed’s actions. Timiraos takes the story to 2021 and the consequences of subsequent Federal Reserve decisions that contributed to the highest inflation in four decades. The author conducted more than 100 interviews. (I spoke with Timiraos, who sought my perspective as an economist who had helped craft President Barack Obama’s response to the 2008 economic crisis, and my take on a congressional meeting at which I delivered remarks.)

“Trillion Dollar Triage” begins with a brief history of the Federal Reserve, from its beginnings to the inauguration of Donald Trump. While little of this story is new, it does provide important context for the steps the Fed took to maintain its crucial independence. We are also introduced to historical role models whom Powell would seek to emulate and other leaders whose example he sought to avoid.

Timiraos recounts President Trump’s nomination of Powell to chair the Fed, Trump’s increasingly insane attacks on the Fed, and Powell’s deft handling of these. We see how the Fed chairman used the president’s criticism to gain broad support on Capitol Hill. He was sitting 20 feet from Powell at the Fed’s Jackson Hole conference in 2019 when Trump tweeted: “Who is our biggest enemy, Jay Powell or Chairman Xi?” Timiraos does not add anything new about this incident, but it was still shocking to relive it in his story.

The narrative takes off as it goes into a detailed day-by-day account of the response to the pandemic, highlighted by charts showing daily Covid-19 death totals and fluctuations in the Dow Jones Industrial Average, among other data.

The book makes clear how much of a collective process this dizzying month of policymaking was. Timiraos portrays not only top Fed leaders such as Powell, Vice Chairman Richard Clarida, New York Federal Reserve President John Williams, and Fed Governor Lael Brainard, but also a variety of employees key like Daleep Singh, whose international contacts warn him in advance about the pandemic; Lorie Logan, who oversaw the Fed’s dealings with financial markets; and Andreas Lehnert, whose penchant for reading disaster books helped him avoid one in this case, to name just a few of the dozens who tackled the crisis and played a role in the book.

The key to their success was not that they did everything right the first time, but that they continued to work on the problems over and over again, addressing the problems in market after market underpinning areas like commercial lending, state lending, and international transactions with promises of forceful action. The team relied in part on Ben Bernanke’s playbook from the 2008 crash, which called for buy Treasury and mortgage bonds to reduce an array At the same time, the Playbook promoted the creation of programs to buy securities in markets that support specific loans, such as credit cards, car loans, and student loans.

All of this was done faster and bigger than in 2008 and spread to new areas. For example, unlike Bernanke, In 2020, the Federal Reserve bought corporate bonds, including junk bonds, as well as municipal securities and a variety of other credit instruments. In many cases, just the promise to act if necessary was enough to persuade the private sector to continue lending at reasonable rates, greatly reducing the resources the Fed had to spend.

Many prominent economists criticized these steps, concerned that would drive the Fed into new political territory that would undermine its independence. In fact, the opposite happened. The Fed enhanced its prestige and bolstered its independence by ensuring that credit continued to flow and markets continued to function. In contrast to the hostile response to much of what the Fed did in the 2008 financial crisis, Rep. Patrick McHenry (NC), the top Republican on the House Financial Services Committee, which oversees the Fed, praised Powell’s work: “A-plus for 2020. On a scale of 1 to 10? It was an 11”.

But the political skills and instinct to go big and fast, which created an almost resounding success in averting a financial crisis in 2020, may have led the Fed to go astray in its macroeconomic response in 2021. Powell encouraged a prosecutor oversized response last year while doing little to alter the Federal Reserve’s extremely easy interest rate even as the recovery accelerated and it became increasingly clear that inflation was not just a transitory phenomenon in certain markets. This response may have contributed to the speed of the US recovery (although I doubt it contributed much), but it also helped fuel inflation, which has rankled Americans and eroded their purchasing power. Rising inflation also makes it harder for the Federal Reserve to respond to unexpected economic dangers, such as a surge in commodity prices following the Russian invasion of Ukraine.

Timiraos provides little insight into what was going on inside the Fed and the minds of its leaders as sought to deal with inflation in 2021, which presented itself first as transitory in the summer and then as a serious problem. concern at the end of the year. Perhaps his sources were less eager to discuss these latest issues than his early successes. As a result, the pages on the current battle against inflation read like a draft of a story that is still being written. Powell’s legacy and the credibility of the Fed will be influenced by the outcome of this story. For answers, we may have to wait for Timiraos to write a sequel.

Jason Furman is Aetna Professor of the Practice of Economic Policy at Harvard University. He served as chairman of the Council of Economic Advisers from 2013 to 2017.

How Jay Powell and the Federal Reserve Fought a President and a Pandemic, and Averted Economic Disaster

Small, brown. 342 pages $30

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