The Federal Reserve’s Power and Its Role in the 2020 Pandemic

In July 2019, Representative Rashida Tlaib asked Jerome H. Powell, the chair of the Federal Reserve, whether he would use the central bank’s powers to help state and local governments during the next recession. He replied that the Fed did not have the authority to do so. However, nine months later, the central bank announced that it would ensure that state and local governments could continue to borrow as credit markets dried up due to the onset of the coronavirus pandemic. This article will discuss the Federal Reserve’s power, its actions during the 2020 pandemic, and its implications for the future.

The Federal Reserve’s Power

The Federal Reserve has long had sweeping authority to use its ability to create money out of thin air to save the financial system and economy in times of trouble. This power was primarily the result of the efforts of Marriner Eccles, who reluctantly took on the job of leading America’s central bank in 1934. As a result, the Fed’s power is beneficial for understanding what happened in 2020 and what that might set in motion for the future.

The Fed’s Actions During the 2020 Pandemic

During the pandemic, the Federal Reserve staged a no-holds-barred intervention to stabilize Wall Street and insulate the economy. It slashed interest rates to rock bottom, bought trillions of dollars worth of government-backed bonds to keep critical markets functioning, and promised trillions more in emergency programs that would keep loans flowing to municipal and corporate borrowers and midsize businesses. This intervention was so successful that by the end of 2020, the Fed’s response effort was shutting down, rapidly fading from the headlines.

Implications for the Future

The Fed’s actions during the 2020 pandemic made it clear to Fed officials, Congress, and financial market players precisely what the central bank can do and whom it can save. This makes it much more likely that the central bank will be called on to use its tools expansively again. It is clear that the Federal Reserve has immense power to intervene in the economy and is willing to use this power to help the economy in times of crisis.

Related Facts

• 15 of every 100 adults who wanted to work were jobless in April 2020.
• Households lost 5.5 percent of their wealth in the first three months of 2020.
• The Federal Reserve slashed interest rates to rock bottom.
• The Federal Reserve bought trillions of dollars worth of government-backed bonds.
• The Federal Reserve promised trillions more in emergency programs.

Key Takeaway

The Federal Reserve has immense power to intervene in the economy and is willing to use this power to help the economy in times of crisis. Moreover, its actions during the 2020 pandemic made it clear to Fed officials, Congress, and financial market players precisely what the central bank can do and whom it can save. This makes it much more likely that the central bank will be called on to use its tools expansively again in the future.

Conclusion

The Federal Reserve has long had the power to intervene in the economy, but it was not until the 2020 pandemic that the central bank was willing to use its control to its fullest extent. This intervention was successful in stabilizing Wall Street and insulating the economy. Moreover, it has opened the door for the Federal Reserve to be called on to use its tools expansively again in the future. The Federal Reserve is a mighty institution, willing to use its power to help the economy in times of crisis.