How the Fed Became Everything (and Everything Became the Fed)

When Powell was sworn in as chair in February 2018, the U.S. unemployment rate was around 4 percent, the Fed’s preferred inflation measure was hovering around its 2 percent target, and GDP was growing at a healthy annual rate of around 2.8 percent. From a macroeconomic perspective, that was central banker nirvana. It didn’t last. If it had, two recent books by Fed reporters would not have been written: Jeanna Smialek’s Limitless: The Federal Reserve Takes on a New Age of Crisis and Nick Timiraos’s Trillion Dollar Triage: How Jay Powell and the Fed Battled a President and a Pandemic—and Prevented Economic Disaster.

Limitless: The Federal Reserve Takes on a New Age of Crisis, Jeanna Smialek, Knopf, 384 pp., $30, February 2023, and Trillion Dollar Triage: How Jay Powell and the Fed Battled a President and a Pandemic—and Prevented Economic Disaster, Nick Timiraos, Little, Brown, 352 pp., $30, March 2022

In times of economic calm, there’s not much grist for book-length behind-the-scenes accounts from Fed beat reporters. But Powell’s tenure has been consequential, weathering the COVID-19 pandemic, tumult in the U.S. Treasury market, threats of firing by Trump, a new spotlight on racial inequality in the U.S. economy, a significant rethinking of the Fed’s monetary policy strategy, Russia’s invasion of Ukraine, the unwelcome return of inflation, and, recently, a banking crisis. And while the Fed has always been a very important actor in the U.S. and international economies—the sub-subtitle of my 2009 book was “How the Federal Reserve Became the Fourth Branch of Government”—the global financial crisis and the pandemic underscored just how it has effectively become the central bank and lender of last resort to the whole world. There is a lot for a couple of journalists to write about.

Every Fed move—a quarter-point increase in interest rates, a new lending program for businesses in a pandemic, a rescue line thrown to a struggling bank—makes headlines. But in the torrent of headlines, it can be hard to put these moves into context. The Smialek and Timiraos books weave recent events into a coherent narrative and, perhaps more importantly, peel back the curtain on key figures making decisions that affect the entire global economy.

Federal Reserve Chairman Jerome H. Powell (L) and U.S. Secretary of the Treasury Steven Mnuchin greet each other after testifying before the House Financial Services Committee on Capitol Hill on Washington, D.C., on June 30, 2020. Tasos Katopodis/Getty Images

The aggressive support for the economy that the Powell Fed provided in the months that followed that conversation is central to both books. Each one is an easy read—a digestible 300 or so pages written clearly enough to be understood by readers who don’t use terms such as “basis points” in daily conversation, while also offering enough tidbits to entertain scrupulous Fed watchers.

Yet while the books have obvious overlap, they are quite different. Timiraos, the Wall Street Journal’s chief economics correspondent, focuses tightly on the monetary and fiscal response to the pandemic with just enough historical context to provide necessary perspective. It’s the traditional, fast-paced first draft of history. The quotes demonstrate Timiraos’s substantial access to Powell and others; the source notes repeatedly cite “author’s interview.” Mnuchin is a major character, dubbed “Secretary Minutiae” because of his reluctance to delegate negotiation of the details on COVID-19 lending programs. Although Timiraos avoids judging the wisdom of the Fed’s actions, Powell is clearly the hero who saved the U.S. economy from collapse.

Smialek, the New York Times’s Fed reporter, also recounts the pandemic but offers a more meandering story, occasionally zigzagging chronologically. (One extraordinary footnote in Chapter 7 reads: “For context, the events related on the pages ahead came chronologically before—in fact, in the lead-up to—the more drastic Fed response [to the pandemic] detailed in Chapter 2.”) Her ambition is to describe the Fed’s expanding role in the economy as an institution; she devotes about a fifth of the book to the history of the Fed dating back to the 1930s and includes a full chapter on climate change and digital currencies.

Unlike Timiraos, Smialek seeks to distinguish herself from “many people who write about the Fed” and “suggest that its officials have saved the world” or “that they have ruined the world.” Fed officials, including Powell, are “ordinary people who control increasingly potent tools,” she writes. (Maybe, but Greenspan was anything but “ordinary”; Yellen rose to the top of a profession that was—and, in many respects, still is—hostile to women; and Bernanke won a Nobel Prize.) Smialek makes a major character of Neel Kashkari, the dynamic, press-friendly, and charismatic president of the Minneapolis Fed who has an expansive view of the Fed’s remit—not because he is central to the action, but because she finds he has “an interesting perspective.” Throughout the book, it’s not clear to whom she has been talking. “To protect my sources and allow a narrative format,” she writes, she doesn’t identify her sources even in footnotes.

So what do we learn about Powell, who must be reminded of the giants who preceded him every time he walks by the portraits of former Fed chairs that hang in the corridor outside his office? When the Obama administration was considering Powell for the Fed board, Smialek reports, a memo to the president said, “Perhaps the biggest downside of Powell is that he would bring less thought leadership and creativity … than some other candidates might. Nevertheless, he brings many other strengths.” After he got to the Fed, according to Timiraos, he groused that the Fed’s Ph.D. economists talked to him as if he was “a golden retriever.”

Although Powell became an assiduous student of economics, he doesn’t think like an economist. Timiraos sees that as a strength, at least during the pandemic. Randal Quarles, who was picked by Trump to be Fed vice chair for bank supervision, tells Timiraos that economist central bankers often confront a crisis and decide that “monetary policy isn’t the right tool here.” But Powell, in Quarles’s words, approached the problem by asking: “What’s the problem we’re facing? How can we address that?” Quarles says that any other Fed chair would have “done much less and moved much more slowly” in the pandemic’s early months, but Powell was clearly right.

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If Bernanke and Yellen sometimes sound like their first language is economics, Powell’s is English. His conversational style, Timiraos writes, reflects his interest in reaching ordinary Americans—a “Jimmy Stewart of monetary policy,” as a former top Fed economist put it—though it sometimes confuses financial markets, an important audience for a Fed chair. His affability proved a huge asset for the Fed on Capitol Hill; members of both parties stood behind him when Trump attacked him for refusing to significantly lower interest rates in 2019. Timiraos writes that Powell followed four rules in that painful period: Don’t talk about Trump; when provoked, don’t return fire; stick to the economy, not politics; and develop allies outside the Oval Office. If a future Fed chair confronts similar circumstances, those rules will be a playbook.

As both books recount, Powell presided over a significant change in the Fed’s monetary policy strategy, tweaking the 2 percent inflation target Bernanke established in 2012 because, for years, inflation had been persistently below target, even as the unemployment rate hit historic lows. In August 2020, the Powell Fed declared that after periods of below-target inflation, the Fed would aim for periods of above-target inflation so that inflation would average 2 percent. On the employment side, the Fed essentially said that it would no longer preemptively raise interest rates only because unemployment was projected to fall precipitously unless it saw evidence of inflation rising to unwelcome levels. Work on the framework preceded the pandemic, but the timing of the unveiling proved awkward. As Timiraos puts it, the strategy effectively committed the Fed to reacting “too late” to any uptick in inflation.

People pass the New York Stock Exchange on Wall Street as stocks posted steep losses following emergency moves by the Federal Reserve to try to avert a recession due to the coronavirus pandemic on March 16, 2020. Johannes Eisele/AFP via Getty Images

Two of Powell’s lieutenants figure prominently in both books: Quarles and Lael Brainard, an economist appointed to the Fed in 2014 who is now chief of President Joe Biden’s National Economic Council. Quarles worked in the U.S. Treasury Department in Republican administrations, Brainard in Democratic ones.

In classic Washington fashion, Powell and Quarles both worked at the law firm of Davis Polk & Wardwell and at the politically well-connected private equity firm Carlyle Group. Powell recruited Quarles to work with him at the Treasury Department in the early 1990s and recommended him to Trump for the Fed post.

Smialek has a great time contrasting Quarles’s free-market, small-government views to those of one of his heroes—and his wife’s great-uncle—President Franklin D. Roosevelt’s Fed chair, Marriner Eccles, whom she says was a Keynesian before the word was invented. (Eccles, though, as she recounts, later played a key role in establishing the Fed’s independence from the White House.) Smialek describes Quarles as “an unusually colorful character for a Fed official,” though the only evidence she offers is his habit of peppering speeches with phrases such as “kaleidoscopic gallimaufry.” Timiraos dwells mainly on Quarles’s role in fashioning the Fed’s response to the pandemic. Smialek writes a bit more about his role—newly relevant in light of this year’s banking crisis—in loosening some of the regulatory strings imposed on banks after the global financial crisis with Powell’s support and over Brainard’s strenuous objections.

Brainard found herself as a key economic advisor to Powell during the pandemic—the “lone liberal,” as Smialek puts it, on the Fed board on bank regulatory issues. Smialek is a Brainard fan: “Owing in large part to her thoroughness and competence, Brainard maintained the respect of her colleagues, even though she was out of step with them ideologically—in Powell’s case, slightly, and in Quarles’s, very. She was often prepared to the point of absurdity.” Brainard, Timiraos reports, was quicker to see the threat from COVID-19 than Quarles. She favored more forceful Fed and Treasury responses to the pandemic and thus was a particularly important early ally when Powell wanted to move aggressively. In 2021, though, she became Powell’s rival when Biden was weighing whether to reappoint or replace him. She clearly wanted the job, but the White House apparently preferred the continuity that came from reappointing Powell (as Obama had done with Bernanke) and perhaps thought Powell would have an easier time winning Senate confirmation without delays.

Quarles has since left Washington, and Brainard has a key White House post from which she is pressing the Fed and other regulators to undo much of what Quarles and the Trump administration did to ease up on the banks. If she ends up succeeding Yellen as Treasury secretary, people will be scrutinizing the passages about her in these books.

In addition to explaining how and why the Fed did what it did during the pandemic, both books are stuffed with juicy little details, reminders that policymaking is not all white papers and spreadsheets. In 2008, for instance, a group of Utahns offered a six-foot bronze statue of Marriner Eccles to the Fed, but folks at the Fed—including Kevin Warsh, the Fed governor who oversaw such things—were unenthusiastic about accepting it. The Fed did eventually take it but put it in a less central place. When Warsh circulated as a potential Fed chair, there were published reports that because of this flap, as well as reported clashes between Quarles and Warsh when they both worked in the George W. Bush administration, the two men wouldn’t work well at the Fed. This, Smialek writes, hurt Warsh’s chances.

Powell testifies at a House coronavirus subcommittee hearing on the Federal Reserve’s response to the pandemic on Capitol Hill in Washington, D.C., on June 22, 2021. Graeme Jennings/Getty Images

Did top Fed policymakers rely on forecasts from the Fed staff that proved to be too optimistic about inflation? Were they lulled into complacency by years in which unemployment fell and inflation didn’t rise? Were policymakers trying to demonstrate that they embraced their new framework by keeping rates low? Did they lock themselves into inaction by their guidance to financial markets? (Powell famously said in June 2020: “We’re not even thinking about thinking about raising rates.”) Or, given all the uncertainties about how badly the pandemic would damage the economy, did they simply decide that the risk of doing too much to stimulate the economy was wiser than doing too little?

These questions are left unprobed. Timiraos’s reporting ends with Biden’s November 2021 reappointment of Powell for a second term as Fed chair; his book came out in March 2022. Smialek’s came out a year later, in February 2023, but her reporting seems to have stopped at the end of 2021. She barely mentions the aggressive series of rate hikes that the Fed began in March 2022, raising the key short-term rate from near zero to between 4.75 percent and 5 percent in less than 12 months and leading many forecasters in the spring of 2023—including the Fed’s—to predict a recession before year’s end.

Powell is not prone to introspection in public. History will judge the Fed, he says. But at a Hutchins Center event last November, he told me: “One piece of guidance that we gave that I probably wouldn’t do again is we said we wouldn’t lift off [raise interest rates from zero] until we saw maximum employment and price stability. I don’t think I would do that again.” A return of inflation, he said, simply seemed unlikely after so many years of very low inflation. “And yet here we are.”