THE FED UNBOUND

A study of the role of the increasingly powerful Federal Reserve in fostering economic inequality.

Menand, a law professor and former Treasury official, explores the ballooning influence of the nation’s central bank. In tracing the consequences of this expansion of authority, he focuses on the institution’s response to two watershed events: the 2008 financial meltdown and the Covid-19 pandemic. As the author explains, the Fed’s ability to address these challenges was complicated by the deregulation of the banking industry over the last several decades and the rise of alternative forms of currency, and it responded by intervening in the economy in ways that deviate strikingly from its original mandate. The Fed now “fight[s] persistent economic and financial crises by using its balance sheet like an emergency government credit bureau or national investment authority—creating new money to backstop financial firms, expand financial markets, and invest in businesses and municipalities.” Menand makes a persuasive case that the Fed’s escalating interventions, which lack political oversight and are heavily influenced by wealthy stakeholders, have a direct and significant bearing on how the nation’s democracy functions. Current stimulus efforts—including so-called QE Infinity, the theoretically endless acquisition of assets—clearly benefit those who hold sizable financial assets, further polarizing the nation’s economic inequality. Menand’s recommendations point to a larger role for Congress in guiding the Fed along with the creation of so-called “automatic stabilizers,” which would take effect without special congressional directives. Another proposal is stricter supervision of “unregulated private money,” including cryptocurrencies, which pose a grave risk, Menand rightly points out, to the government’s ability to control the economy. He argues persuasively that major restructuring of the Fed would alter the “balance of power between the financial sector and the government so that our system is efficient, equitable, and inclusive.”

A clear and cogent assessment of how the nation’s central bank might be reformed.