Summary: Trillion Dollar Triage: How Jay Powell and the Fed Battled a President and a Pandemic—and Prevented Economic Disaster by Nick Timiraos

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During the 2008 global financial crisis, the Federal Reserve and the US government mounted a halting response that prolonged the economic agony. During the coronavirus downturn of 2020, by contrast, the Fed and the feds acted so decisively that they stabilized the economy in just a few months. As the chief economics correspondent for The Wall Street Journal, Nick Timiraos had a front-row seat to the crisis. In this engrossing retelling, he paints Fed Chair Jerome Powell as a steady hand who made the right moves with minimal drama. Perhaps the only weak spot in this account is that it ends while Powell could still term inflation “transitory.”

Take-Aways

• At the start of the COVID-19 pandemic, Jerome Powell was at the helm of the US Federal Reserve.
• Powell soon felt the wrath of President Donald Trump.
• Powell responded swiftly to the economic effects of the coronavirus pandemic.
• The federal government soon joined the Fed in enacting an aggressive stimulus.
• The crisis raised new conundrums for the central bank.
• As the economy went into free fall, the US government authorized additional stimulus.
• In April 2020, the economic news grew steadily worse.
• The US economy quickly hit bottom.
• When the economy recovered, inflation became a new problem for the Fed.

Summary

At the start of the COVID-19 pandemic, Jerome Powell was at the helm of the US Federal Reserve.

Jerome Powell had made millions on Wall Street. His résumé included a stint at Dillon Read as the head of mergers, and he later joined the Carlyle Group, a private equity fund, where he oversaw buyouts of industrial companies. In 2010, wealthy and eager to switch careers to government service, he joined a nonpartisan think tank. In 2011, the Republican-controlled Congress was at odds with President Barack Obama, and the debt ceiling and a government shutdown were much-debated topics in Washington, DC. Treasury Secretary Tim Geithner began referring reporters to Powell as an unofficial voice of reason in the debt ceiling debate. Next, Geithner began using Powell to talk down those Republicans willing to push the economy into crisis.

“Powell’s visit to the lion’s den burnished his appeal as a non-ideologue who wasn’t going to sugarcoat things.”

Powell’s skill at calmly and clearly explaining complicated ideas led to his appointment to the Federal Reserve’s Board of Governors. Powell looked the part, with his silver hair and Ivy League pedigree. He also had a sharp memory and strong listening skills. But he hadn’t been trained as an economist, leading Fed staffers to speak down to him: “They talk to me like I’m a golden retriever,” Powell cracked. In 2014, the Fed confirmed Powell to a 14-year term. In 2017, after Janet Yellen announced she was stepping down as Fed chief, Powell made the short list as a replacement. He soon found himself in a face-to-face meeting with President Donald Trump about the job. Powell officially assumed his role as Fed chair in February 2018.

Powell soon felt the wrath of President Donald Trump.

In October 2018, Powell suggested that the Fed was planning to raise interest rates. The comment startled investors, and stocks dropped 6.6% from October 3 to October 11. Trump began to lash out. “The Fed has gone crazy,” the president said to reporters. Trump clearly envied the president of China who didn’t have to worry about an independent central bank. In October and November, Trump repeatedly bashed the Fed. The public criticisms forced Powell to navigate a tricky balance: If he stopped raising rates, he’d seemingly be giving in to Trump – and the image of an independent Fed would be destroyed.

“Even if Powell never flinched publicly, Trump’s continual attacks on the Fed put him in a bind.”

As one Wall Street economist wrote, “Jay Powell does not want to go down in history as the Fed chair who was pushed around by an economically illiterate president.” Understanding his predicament, Powell developed a disciplined approach to dealing with the tempestuous president. Powell embraced four rules that allowed him to deescalate the feud with the Oval Office:

1. Don’t discuss the president – Powell attended a lunch with economists in Boston. When the discussion turned to Trump and his criticisms of the Fed, Powell simply said nothing.
2. Don’t talk about Trump, even when goaded into it – During an on-stage interview at the Dallas Fed, that bank’s president tried to get Powell to discuss the sniping coming from Trump. Powell didn’t take the bait.
3. Talk about the economy, not politics – Any time Powell was asked publicly about Trump’s vitriol, Powell changed the subject to employment and inflation.
4. Groom allies outside the administration – Despite Trump’s attacks, Congressional Republicans supported Powell, and Powell responded by keeping the lines of communication open.

Powell responded swiftly to the economic effects of the coronavirus pandemic.

In early 2020, US stocks were near record levels when the first coronavirus cases emerged in America. On February 27, just 15 COVID-19 cases had been reported in the United States. But on February 28, Powell put out a statement saying the Fed would “act as appropriate to support the economy” – a signal that the central bank was willing to cut rates before its next scheduled meeting in mid-March. The Trump administration, underestimating the COVID-19 threat, supported an $8 billion funding bill that amounted to a puny $24 per US citizen. Trump continued to publicly bash the Fed, posting a 1:30 a.m. Tweet labeling Powell as “Sad!” Even so, when the Fed announced a half-point cut in interest rates in early March, investors were confused because the coronavirus seemed a distant threat. Larry Summers, the former Treasury Secretary, said the Fed had done too much too soon. The federal government, on the other hand, was moving slowly. Trump denied that the coronavirus was even real, let alone a risk to the economy.

“Fed officials are about as receptive to amending the Federal Reserve Act as they are to a root canal without anesthesia.”

Meanwhile, the Fed was already looking for steps it could take beyond lowering interest rates. After all, rates were already close to zero. In Europe and Japan, where central banks had held rates at zero or even at negative levels, central bankers supported their economies by buying bonds. Now the Fed wanted to begin buying corporate bonds, too, even if such a move would require changes to the Federal Reserve Act. By early March, the crisis was escalating. Governors declared states of emergency, and the National Basketball Association shut down its season. On March 9, the Dow Jones Industrial Average plunged 7.8% in a single day.

The federal government soon joined the Fed in enacting an aggressive stimulus.

In early March, Jason Furman, an economics professor at Harvard, wrote a piece in The Wall Street Journal that made the case for a $350 billion stimulus. It would amount to a one-time payment of $1,000 to every taxpayer, plus $500 per child. House Democrats were receptive to the idea. The Fed, meanwhile, was ramping up, too. The central bank prepared to pump $1.5 trillion into the US banking system and begin spending $60 billion a month on Treasury bills.

“Normally central banks – large, bureaucratic organizations staffed with academics – move ploddingly and carefully because the economy itself changes gradually.”

Stocks continued to gyrate, and Powell convened an emergency board meeting on March 15, a Sunday. The Fed wanted to head off a panic and persuade investors that it was doing everything possible. The Fed went all out: It proposed slashing its short-term rate a full percentage point – to zero. Another centerpiece of the latest rescue plan was asset purchases. The Fed would buy $500 billion in Treasury securities and $200 billion in mortgage-backed securities.

The crisis raised new conundrums for the central bank.

Despite the Fed’s bold move, markets continued to collapse. Among others, Bridgewater Associates, a giant hedge fund, had decided over the weekend that it was time to sell stocks. The Dow plunged nearly 3,000 points in a single day. The White House and Congress began to realize that they needed to take dramatic action, too. An early draft of a stimulus package called for $1 trillion in relief, including $500 billion for small businesses and more for unemployed workers.

“Donald Trump, who had wanted zero interest rates in the worst way, was getting all of that and more.”

Powell, meanwhile, knew that the Fed’s big round of asset purchases could seem hypocritical. For one thing, Powell had disapproved of corporations that played fast and loose with debt, and yet here he was, supporting an apparent bailout. What’s more, the Fed’s response to the 2008 crisis had opened it up to criticisms that the central bank was more concerned about large banks than about average Americans. But in the face of a fresh crisis, lawmakers from both parties forgot that recent history and demanded that the Fed act.

As the economy went into free fall, the US government authorized additional stimulus.

In a March 26 television interview, Powell explained that capital markets were frozen. The usual apparatus for issuing mortgages and auto loans had “just stopped working,” he said. During the week of March 16, nearly 3.3 million American workers filed for unemployment benefits; the previous record, set in 1982, was 695,000. Unemployment was set to soar into the double digits. In late March, Trump signed the $2 trillion CARES Act. The package included $1,200 checks issued to American taxpayers and signed by Trump. Meanwhile, COVID-19 cases and deaths were soaring.

“Given the speed with which markets had cracked up in March, Powell decided it was better to err on the side of doing too much than not doing enough.”

The rapid response from the central bank and the White House showed that Washington had learned its lesson from the 2008 crisis. During that collapse, no one had responded assertively enough. As a result, the Great Recession turned into a jobless recovery, a tepid rebound marked by slow growth. This time around, the marching orders were clear: Central bankers and political leaders would go big and move quickly, and they would deal with the consequences after the immediate emergency had passed. In one contentious move, Powell supported Fed purchases of junk debt. The rationale was that, unlike 2008, the 2020 crisis was not caused by bad behavior and reckless borrowing. Rather, it was “a truly exogenous shock,” as one official described it.

In April 2020, the economic news grew steadily worse.

On April 9, the US Labor Department reported an additional 6.6 million claims for unemployment insurance. Nearly 17 million Americans had applied for unemployment assistance. The volumes were so high that state labor department websites and phone lines couldn’t handle the crush of applications. Meanwhile, infection rates and deaths continued to balloon. Business leaders lauded the Fed’s swift action. In May 2020, Warren Buffett noted that the central bank’s response to a crisis typically proved “inadequate,” but not this time.

“By the end of March, the markets were beginning to function normally and the Dow was on a steady upward trend.”

Quick action from the Fed and Treasury created a crucial backstop for the corporate bond market. And the rapid launch of the Paycheck Protection Program (PPP), which funneled money to major employers, helped avert further layoffs. However, the PPP didn’t apply to every employer that needed money. So Congress directed the Fed to launch the Main Street Lending Program. The Fed would ask banks to make loans to companies that were creditworthy before the pandemic; then the lender would keep 5% of the loan, and the Fed would buy the rest. The goal was to avoid a repeat of the criticisms of 2008 and 2009 when bailouts focused on the largest corporations. But the program quickly ran into trouble. The initial minimum loan amount of $1 million was too much for many small businesses. What’s more, lenders with creditworthy borrowers wanted to keep the entire loan, not just 5%, and if the borrower was too risky, they didn’t want even 5%. In contrast to the more successful COVID-19 fiscal programs, the Main Street initiative remained bottled up.

The US economy quickly hit bottom.

In February, the US jobless rate had stood at just 3.5%. By April, it neared 15%. The uneven nature of the coronavirus recession presented new challenges. White-collar workers stopped going to the office but kept working from home. Service-sector employees, by contrast, were out of luck. Restaurants and hotels were closed, and workers had no jobs to go to. This led to talk of a K-shaped recovery – those at the top of the wage scale would see their finances bounce back, while those at the bottom would struggle.

“The Fed’s response had played a critical role in rehabilitating markets.”

The federal response was successful, however, at heading off a wave of foreclosures. As of mid-May 2022, some 4.2 million American homeowners had gotten permission to stop making mortgage payments with no penalty. That measure meant there would be no repeat of the foreclosure crisis that had characterized the Great Recession. In June 2020, Powell spoke at a news conference and said the US economy had avoided catastrophe, even as longer-term worries loomed over workers and investors.

When the economy recovered, inflation became a new problem for the Fed.

In early 2021, as COVID-19 vaccinations became widely available, Americans started spending and traveling again. At the same time, supply chains remained choked. Cargo ships sat with goods at sea. Prices of lumber and used cars soared. Powell argued that rising prices were temporary – “transitory,” in his phrasing. After all, inflation is merely a year-over-year comparison, and the economy had been effectively shut down for much of 2020. Meanwhile, the new president, Joe Biden, signed the $1.9 trillion American Rescue Plan. With Americans awash in a sea of cash, the value of everything soared. Stocks skyrocketed, but so did bitcoin and even digital artworks in the form of non-fungible tokens.

“Near the end of 2021, one worry was that officials had misjudged how demand, not just supply, was fueling higher prices.”

Some began to fret that the central bank was creating a bubble. Larry Summers went on television to decry the “least responsible macroeconomic policy we’ve had in the last 40 years.” By November 2021, Powell had set the stage for winding down the Fed’s program of asset purchases. But as inflation accelerated, questions emerged about just how skillfully the Fed had triaged the crisis. The central bank had pumped huge amounts of liquidity into the economy, but the effects of that liquidity coincided with the roll-out of the COVID-19 vaccines, which set off an economic boom of its own. The episode underscored the problem the US economy faced: With trillions of dollars at its disposal, the Fed can indeed avert a crisis. However, its tools are blunt – not precise – instruments.

About the Author

Nick Timiraos is the chief economics correspondent for The Wall Street Journal.

Review

Trillion Dollar Triage is a meticulously researched and comprehensive account of the critical role played by Jay Powell and the Federal Reserve in navigating the United States through one of the most challenging periods in recent history. Authored by Nick Timiraos, this book presents a detailed analysis of the actions taken by Powell and the Fed to combat the economic fallout of the COVID-19 pandemic while contending with the pressures of a contentious political environment.

Timiraos begins the book by setting the stage, providing a brief historical backdrop of the Federal Reserve and its significance in shaping the nation’s monetary policy. He then delves into the events leading up to the pandemic, highlighting the initial response of the Fed as the crisis began to unfold. The author’s ability to capture the complex financial intricacies and translate them into accessible language is commendable, making the book accessible to both experts and those with a limited understanding of economics.

One of the book’s strengths lies in Timiraos’ portrayal of Jay Powell, the Chairman of the Federal Reserve, and his leadership during this period. The author paints a vivid picture of Powell’s character, emphasizing his determination, pragmatism, and ability to navigate the delicate balance between politics and economic stability. Timiraos provides readers with unique insights into Powell’s decision-making process, shedding light on the internal debates within the Federal Reserve and the challenges faced in maintaining independence while facing political pressures.

Trillion Dollar Triage examines the various tools and mechanisms employed by the Federal Reserve to stabilize the economy in the face of a rapidly deteriorating situation. From emergency interest rate cuts and the establishment of lending programs to unprecedented asset purchases, the book explores the efficacy of these measures and their impact on the financial markets and the broader economy.

Timiraos skillfully integrates key political events, including the strained relationship between President and Fed Chairman, into the narrative. He highlights the tensions and clashes between Powell and the Trump administration, providing a nuanced analysis of how their differing views on economic policy and leadership styles shaped the response to the pandemic-induced crisis.

The book does an excellent job of demystifying the inner workings of the Federal Reserve, making it accessible to readers who may not have a strong background in economics or finance. Timiraos effectively breaks down complex concepts into digestible explanations, ensuring that readers can follow along and grasp the significance of the decisions made by the Fed.

Moreover, Trillion Dollar Triage offers a comprehensive analysis of the long-term implications of the Federal Reserve’s actions. The book explores the potential risks and unintended consequences of the massive stimulus measures undertaken, raising crucial questions about the sustainability of such policies and the potential for future economic instability.

In conclusion, Trillion Dollar Triage is an engrossing and enlightening account of Jay Powell and the Federal Reserve’s response to the pandemic-induced economic crisis. Nick Timiraos’ meticulous research and his ability to present complex economic concepts in an accessible manner make this book a valuable resource for anyone interested in understanding the inner workings of the Federal Reserve and the challenges faced during times of crisis. Trillion Dollar Triage serves as a testament to the critical role played by central banks in preserving economic stability and offers valuable insights for policymakers, economists, and general readers alike.