Do We Know the Outer Limits of the Fed's Power?

• Author: McKinley, Vern

Limitless: The Federal Reserve Takes on a New Age of Crisis

By Jeanna Smialek

384 pp.; Knopf Publishing, 2023

Just a few weeks into the U.S. government response to the COVID-19 pandemic, on March 26, 2020, Today show host Savannah Guthrie asked Federal Reserve Chair Jerome Powell, "Is there any limit to the amount of money that the Fed is willing to put into this economy to keep it afloat?" Powell, who was appointed by Donald Trump and re-appointed by Joe Biden, responded candidly: "The only limit on that will be how much backstop we will get from the Treasury Department.... Essentially the answer to your question is no--we can continue to make loans."

Their conversation is recounted in the aptly titled Limitless, a new book by Jeanna Smialek. As she summarizes it, "The Fed's power across a wide range of markets, Powell was acknowledging, was on the brink of becoming limitless." Such comments are by no means isolated, as she also quotes Minneapolis Fed President Neel Kashkari saying of the Fed's money-making power, "There's an infinite amount of cash at the Federal Reserve."

Limitless is Smialek's first book. She is the Federal Reserve reporter for the New York Times and a regular questioner at Powell's periodic news conferences on monetary policy and the state of the economy. She previously worked for Bloomberg News and Bloomberg Businessweek.

Limitless was released late last February. I read it during the spring, as the Fed, the Treasury, and the Federal Deposit Insurance Corporation applied their expansive systemic-risk powers during the failures of Silicon Valley Bank, Signature Bank, and First Republic. Needless to say, the book was a timely read.

The methodology / In the book, Smialek ambitiously combines an abbreviated history of the evolution of the Fed's powers since its creation with a deep look into the changes to the role of, and expectations created by, the Federal Reserve in the wake of this century's global financial crisis and the pandemic.

Limitless's tracing of the historical evolution of the Federal Reserve's powers follows other recent books on the Fed, such as Peter Conti-Brown's The Power and Independence of the Federal Reserve (see "The Ulysses/Punch Bowl View of the Fed," Winter 2016-2017) and Sarah Binder and Mark Spindel's The Myth of Independence (see "Financial Crisis, Blame, Reform (Repeat)," Summer 2018). Smialek commits a large share of her book to the Fed's pandemic response, like Nick Timiraos' Trillion...