The money maker
ON MARCH 11, A GROUP OF TRADERS INSIDE THE NEW YORK FEDERAL RESERVE Bank had the chance to watch, in real time, as financial markets spiraled downward. The market was in a panic that day. Stocks were down about 20% from their high in February, and the bottom didn’t seem within view. As the novel coronavirus pandemic was starting to roll across the country, markets were trying to price in the near biblical damage it might cause. The traders inside the Fed had the unenviable job of trying to make sense out of the chaos. They met around a conference table, nursing their coffees, taking notes and speaking to their colleagues throughout the country. The New York team was the central bank’s eyes and ears in the market, and their reports were grim. Even ultrasafe markets were seizing up. Buyers and sellers were having a hard time even determining a price for key assets. This was a crisis.
The information gathered in New York was ultimately passed on to Federal Reserve Chairman Jerome “Jay” Powell. Before the markets closed on March 11, Powell made a breathtaking announcement. The Fed was willing to print half a trillion dollars the following day, to provide short-term loans for distressed borrowers on Wall Street. The day after that, the Fed would offer another $500 billion in the short-term loans (called repo loans) market. A trillion dollars, offered over two days, was the central-bank equivalent of a “shock and awe” campaign. There was every reason to believe this would work. The Fed’s superpower rests on the simple fact that it is the only institution on earth that can create U.S. dollars out of thin air (that thing we call a “dollar” is, in fact, a Federal Reserve note). But on March 12, the Fed was outmatched by the coronavirus. Even a trillion dollars didn’t soothe the nerves of traders. They worried that all the printed money in the world couldn’t give people the courage to go back to Chipotle or the movie theater. Printed money couldn’t keep open the businesses along Fifth Avenue in Manhattan. Markets continued to crash.
In the face of this panic, Powell and the Fed unrolled a second, even larger, wave of actions in late March and early April, pushing the central bank into new areas of the economy, expanding its reach dramatically and weaving it more tightly than ever into the fabric of American economic life. Now the Fed stands as the guarantor of huge swaths of the American and world economy. It’s not a place where Powell expected to find himself.
“My views evolve with the evidence,” Powell
