From today’s perspective, the Fed looks more limited than limitless
The actions worked a little too well. Before long, growth was recovering, markets were booming and price pressures were building. The Fed ended up having to fight America’s worst outbreak of inflation in decades—a fightThis sharp duality poses a dilemma for any appraisal of the Fed’s record during the pandemic.
In one passage she describes a meeting in late February 2020, a couple of weeks before most Americans started paying close attention to the pandemic. Jerome Powell, the Fed’s chairman, asked Richard Clarida, his second-in-command, whether this might turn into a repeat of the global financial crisis of 2007-09. “No,” Mr Clarida replied, “the worst-case scenario means it basically looks like the Great Depression.
It only got to that point because of the institution’s rapid evolution over the previous two decades—a history crisply laid out by Ms Smialek. It was, the Fed’s chairman during the global financial crisis, who pioneered many of the tools deployed and enlarged by Mr Powell. More than that, though, an intellectual shift had persuaded officials that they could let the labour market run hotter than once believed without triggering an inflationary spiral.
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