Jeanna Smialek headshot and Limitlesss book cover

Limitless: the history and future of the Federal Reserve Bank

The Federal Reserve Bank of the United States has gone from a 30-year run as quiet and boring to one of the highest profile institutions in the world.

Its unique structure (its a central bank, but don’t call it that) and influential leadership (appointed leaders shaping the economy) bring it scrutiny, especially in a new era of “limitless” resources. Its history and future is the focus of Limitless: The Federal Reserve Takes on a New Age of Crisis, a 2023 book written by New York Times fed reporter (and Pittsburgh native) Jeanna Smialek.

The book’s final quarter features quite a bit of detail into the pandemic era machinations of fiscal policy, which will interest some but was too much for my interests. Still the overarching history and connective argument make it worth the read. Last year, I got but could not will myself through former Fed chair Ben Bernanke’s book on 21st Century Monetary Policy. In contrast, Smialek kept me engaged. The author is a regular on Marketplace, the popular public media business and economics radio show and podcast that I follow. I enjoyed it and recommend it.

Below I share my notes from the book for my future reference.

Here are my notes

  • Marriner S. Eccles (1890-1977), Fed chair from 1934-1948 “The average person’s security is no greater than the stability of the economy in which he is a participant.”
  • A set of goods and services that cost $20 in 1970 more than doubled to $41 by 1980, but a similar bundle that cost $20 in 2010 cost is $24 and 2020
  • During this low inflation period Jay Powell could focus on “the little guy” (Fed Listens program)
  • Neel Kashkari stance that the 10-year Great Recession recovery was too slow and left too many Americans out (I remember this interview); he told 60 minutes in March 2020 that the fed has “infinite” dollars to backstop the system
  • Senator Aldrich influenced what became the Federal Reserve Act of 1913, after an election switched political leadership, it was Carter Glass who brought the fruition the legislation but many many interests and peoples, including presidents, shaped the compromised fed legislation. It wasn’t a central bank but a money flowing entity
  • In April 1914 announced Fed locations and it was heavily lobbied. Richmond bested Baltimore for a southern Democrat stronghold; banking centers like Philadelphia and Columbus meant no steel-dominated Pittsburgh; two in Missouri but few others any further west before population trends
  • Eccles leads 1935 fed legislation that serves as the fed’s second founding, after he experienced the importance of spending an economic downturn (paradox of thrift)
  • “At the time of its creation, proponents and opponents recognize the principle issue: Would the Federal Reserve be controlled by bankers operating their interest, or by politicians operating theirs?” Allan Meltzer Fed historian
  • In January 1951, President Truman and Secretary Snyder try to push the FOMC to keep interest rates at 2.5% but Eccles pushed back (after his demotion) , leaked the pressure to newspapers and took over inflation and price stability as a mandate (employment act of 1946 and the treasury-fed accord)
  • The Bretton Woods agreement (1944) began to move away from gold standard: first other countries pegged to dollar, which was pegged to gold at $35 an ounce
  • Martin and Fed in 1960s believed inflation was better than unemployment and drove toward just 4% unemployment while inflation picked up; Nixon then pressured a new fed chair to let it run hot during his campaign of 1972
  • The Fed dual mandate came from congress in 1977; Paul Volcker gets appointed jn 1979; he is highly criticized at the time and costs Jimmy Carter reelection but ushers in The Great Moderation. Volker gave the fed its modern independence
  • Volker cared about money supply; Greenspan returned to interest rates
  • Alan Greenspan “ the issue, which must be resolved, indeed has to be, is the balance between accountability, which is essential in a democratic society, and effectiveness of monetary policy.”
  • Bernanke set 2% price target for the US (informed by New Zealand)
  • Neutral or natural rate
  • The Willard Hotel in DC is the origin of term lobbyists, from those who waited in the lobby for Ulysses S Grant
  • Despite political differences, Randal Quarles and Lael Brainard promoted a cordial friendship despite politics, a sign of how the fed has tried to remain nonpartisan
  • March 23 2020 at 8am came the expansive Fed announcement that changed it forever
  • CARES ACT included and extended beyond the Fed; McNuchin was flashily but got it now
  • Kaskari really pushed that Great Recession was too timid and too much oversight
  • Median Top 10% had $8380 for every $1 for bottom 25%, that was $718 in 1995; top 1% had 31% of wealth in 2019, up from 24% in 1989
  • Did Fed cheap money contribute to inequality? That doesn’t appear to line up chronologically, author argues
  • Also lower rates were a global trend as demand for capital lessened in aging population
  • And income and wealth Inequality handled low rates differently
  • “The fed’s job was to lay the groundwork for prosperity, not to decide how it was distributed.” That responsibility lies with Congress
  • The Regional feds have less gold plated resumes and via Beige book are supposed to listen to people
  • What is full employment when communities experience it differently?
  • Alice Rivlin (Fed vice chairman from 1996-1999): “While the Fed has access to all the latest analytics and an excellent staff to analyze them, it has not found the stone tablet.” In 1997
  • Powell’s pandemic remote speech at virtual Jackson Hole had two big points: average inflation over time not target AND only looking for shortfalls in employment (as opposed to guessing when employment was too hot) . Powell flipped to focus on employment with Janet Yellen influence
  • Skanda Amarnarth and Employ America
  • Mnuchin criticized for not taking on enough risk with the Main Street program (risk is necessary for speed)
  • Bank of England’s Mark Carney in 2015: tragedy of the horizon
  • How involved Should Fed be in climate?
  • Crypto regulation
  • Judy Shelton, who advocates for a return to the gold standard and against the Federal Reserve, was nearly confirmed to join the fed, despite her political reputation — a reminder that the Fed’s independence is a danger especially (like Arthur Burns under Nixon)
  • And then inflation: what caused it? Inflationary and soft landing
  • Meme stocks and NFTs as easy momey
  • Fed trading a la Michael Derby
  • Biden renomination of (Trump-nominated) Powell instead of Brainard to keep bipartisan reputation

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