On November 2, 2017, President Donald J. Trump nominated Jerome H. Powell to serve as Chairman of the Federal Reserve. On February 5, 2018, he undertook one of the most important positions in modern economic society.
Federal Reserve Board Building, Washington D.C
Nearly two years later, a new crisis began. Economic downturn was imminent, and the fate of the U.S economy was in the Fed’s hands. With millions of Americans jobless and the United States seeing a surge in new COVID-19 cases, some fear of a new collapse. One that might wreak havoc on the economy.
Some Background
Before he was Chairman of the Federal Reserve, Jerome Powell served on the Federal Reserve Board of Governors under Barack Obama, and, for the first time since 1988, he was nominated by a president of the opposite party.
Chairman of the Federal Reserve, Jerome H. Powell
In July 2017, Powell regarded Fannie Mae and Freddie Mac’s current condition as “unacceptable” and “unsustainable,” and warned that “the next few years may present our last best chance [to] address the ultimate status of Fannie Mae and Freddie Mac” and avoid the mistakes they made in the past.
Powell isn’t new to the game. From 1990 to 1993, Jerome Powell worked in the United States Department of the Treasury, and in 1992 he became the Under Secretary of the Treasury for Domestic Finance after being nominated by George H. W. Bush.
Instead, many view Powell as a flawed Chairman of the Federal Reserve, and his approach to U.S economic monetary policy a mistake.
Under Scrutiny
Since Jerome Powell assumed office on February 5, 2018, it’s been a slippery slope. He’s been criticized by President Trump for not lowering federal interest rates, and he’s come under pressure for instituting quantitative easing, a policy where the Federal Reserve purchases government bonds or other assets in order to inject money into the economy.
“Here's a guy, nobody ever heard of him before. And now, I made him and he wants to show how tough he is ... He's not doing a good job.” - Donald Trump
In 2018, Trump complained about the Fed raising interest rates and said that he “maybe” regretted nominating Powell. In July 2019, Jerome Powell said he would not step down as Chairman of the Federal Reserve if Trump asked him to.
“…As usual, Powell let us down.” -Donald Trump
What’s the Fed Doing?
Federal funds rate
Since March 3, the Fed has lowered its federal funds rate, the percent banks have to pay to borrow money overnight, to nearly zero. The federal funds rate is often lowered as a way to help strengthen the economy. This also means that a lower federal funds rate acts as an indicator for short-term and long-term interest rates. As a result, the cost of borrowing money on home mortgages, auto loans, and other loans is lowered, but it also reduces the interest that savings accounts receive.
Quantitative Easing
Quantitative Easing (QE) was a strategy used during the Great Recession. QE includes the Federal Reserve purchasing securities in order to increase the money supply and promote lending and investment in order to strengthen the economy. On March 15, the Fed said it would purchase $700 billion worth of securities in an effort to stabilize the economy.
Loans, Loans, Loans
In an effort to reduce unemployment claims and get the American people working again, the Federal Reserve’s Main Street Lending Progam announced that it would aim to support business too large for the Paycheck Protection Program (PPP) and too small for the Fed’s two corporate credit facilities. Through the New Loans Facility, Expanded Loans Facility, and the Priority Loans Facility, the Fed financed up to $600 billion in five-year loans.
Why It’s So Controversial
In addition to those listed, the Federal Reserve has implemented dozens of strategies and policies in an effort to stabilize the economy. Since March, the United States has seen more than 2.8 million new cases of COVID-19 and more than 129,000 have died from it.
The controversy is whether or not the Federal Reserve is helping the American people in the way they need it most. For the time being, the Federal Reserve has tried to save the economy on a corporate scale. Now, it’s time to benefit the American people directly.
The real issue is time. Will the Federal Reserve have enough time to save the United States economy? Or will it be too late in its attempts to strengthen financial markets?
Only time will tell. However, right now things are looking grim. A resurgence in COVID-19 cases suggests a new lockdown be put in place, which could mean millions more Americans unemployed and the economy even more bombarded than before. Until then, the Fed seems cautious stating that they “see interest rates staying near zero through 2022” with GDP possibly falling 6.5% this year. With very little evidence for a COVID-19 vaccine in sight, the economy will most likely waver, falling up and down, throughout the remainder of this year. But the recovery won’t be as lucky as the Fed or Trump thinks it will.