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 Dollar Triage (see “Was It Really Triage?” Summer 2022).

The history / As Smialek warns the prospective reader in her introduction, “The chapters ahead jump around chronologically.” She begins with the role of the Fed as of late 2019 in the lead-up to the pandemic and in the early months of financial instability in March 2020. That 2019–2020 rerun is followed by three chapters (about 20 percent of the book) dedicated to the history of the evolution of central banking in the United States (from 1791 to 2019), followed by a return to the contemporary period.

Smialek’s whirlwind tour of people and events will be familiar to those who have read about the history of central banking and the Fed during this period, and for those readers this material can be skimmed. She writes of Hamilton’s First Bank of the United States, Nicholas Biddle’s management of the Second Bank of the United States, and Andrew Jackson bringing an end to that early era of central banking.

She writes that “instability dogged” the system during the remainder of the 1800s and “the system was prone to runs.” (It should be noted that both conditions persist in the 2000s.) She informs readers of the greenbacks of the 1860s, the onset of the National Bank Era, William Jennings Bryan, the Panic of 1907 (the rationalization to create the Federal Reserve), and J.P. Morgan’s subsequent “private bank bailout.” Then, she gets to Jekyll Island and Sen. Nelson Aldrich’s bill that ultimately became the Federal Reserve Act. The book summarizes the early history of the Fed, including the New York Fed’s Benjamin Strong and the chairmanship of Marriner Eccles. It explains the Treasury–Fed Accord and the reign of William McChesney Martin.

Finally, she describes the modern era of the Fed, with inflation subdued under Paul Volcker; the ensuing Great Moderation, mostly under Alan Greenspan; the Great Recession under Ben Bernanke, with the Fed’s massive response of loose money and financial institution bailouts; and the modest efforts at normalization under Janet Yellen.

Ever-growing role / Smialek raises a good question in her introduction: “Is it healthy for our democracy to have a Fed this powerful?” But she doesn’t provide a clear, well-defended answer, though she seems to be in the “yes” camp. In an interview that followed the release of her book, she commented:

I feel like the point I try to make in the book … is that there’s nothing nefarious about the Fed’s evolution into being a very powerful organization. And it’s not a conspiracy and it’s not some sort of giant group of elites trying to take over the world. I explicitly try to counter that narrative…. We need someone to back all of that [the market(?)] up. And there’s a good reason that power’s been vested in the Fed because it’s very nimble, because it’s not going through some sort of democratic process.

I have a different, more skeptical summary of those historical developments: We don’t need an elite group of “smart people” to accrue enormous power and control over our economy, working through an organization lacking in transparency and accountability. This danger is especially clear when that elite group makes mistakes that have broad effects, such as allowing inflation to rear its ugly head after a 40-year absence.

The new inflation / In the last chapter before her Epilogue, entitled “A Year of Uncomfortable Questions,” Smialek describes the “Federal Reserve’s new problem…, an inflationary burst…, an overly large mistake…, to spend money inefficiently on the short-lived sugar high of stimulus.”

She lays much of the blame for the current inflation on overzealous fiscal policy that was “at least partially because of policies passed by … the new [Joe Biden] presidential administration and Congress in Washington.” She also rightly notes that Donald “Trump … had been supportive of another round of large checks.”

Fiscal policy by both administrations surely deserves blame. Smialek also explains that “waves of coronavirus continued to disrupt factories across the globe,” affecting the balance between goods and money. Still, she lays some of the blame on the Fed, “Very low rates were encouraging more families to attempt to buy a car or try for a house, which they might then have to remodel and furnish in an added boost to consumption, so the Fed’s policies were also visibly playing a role.”

Smialek also makes a strong case that the Fed made massive mistakes on inflation forecasting:

Powell and the majority of his colleagues had spent much of 2021 predicting that price gains would calm down as pandemic weirdness worked itself out, labeling the inflation “transitory.” The chair had used his speech at that year’s Jackson Hole conference to list reasons why inflation was likely to fade on its own eventually.

Opaque Fed / Smialek gives the Federal Reserve system far too much credit for its recent, limited transparency moves:

It has tried to become more transparent and publicly accountable as it has grown more important…. The central bank wanted to be transparent not because it made policy more effective—the Bernanke innovation—but because it wanted the public to feel heard.

She neglects to raise the longstanding Fed efforts to push back on transparency, like in the lawsuit filed by Bloomberg in the wake of the 2007–2009 financial crisis where the Fed fought tooth and nail to avoid disclosure of the most basic information about their bailout and lending programs. (It ultimately lost at the Supreme Court.) She also ignores the Fed’s egregious lack of transparency under the cloak of banking supervision, sometimes referred to as confidential supervisory information, and the operations of the Federal Reserve Banks, which are not subject to basic federal transparency laws such as the Freedom of Information Act.

Fan club / I commented in my review of Timiraos’s book that he showed himself to be a Powell fan. Smialek, similarly, is a fan of former Fed vice chair (and, before that, board member) Lael Brainard:

Owing in large part to her thoroughness and competence, Brainard maintained the respect of her colleagues, even though she was out of step with them ideologically…. She was often prepared to the point of absurdity. Staffers told stories about times they had been sent to brief her only to realize that she knew as much about the topic at hand as they did.

In my review of Timiraos, I wrote, “My personal preference is to read a historical summary from an author who takes a more critical approach.” That applies to Smialek, too.

Conclusion / I found Limitless to be a useful update of how the 2020 interventions were more of the same from the Fed. But the presented history is just too cursory to have much value to readers other than someone unfamiliar with the other histories I have noted, as well as Allan Meltzer’s multi-volume History of the Federal Reserve.

Smialek made a good point about the future of the Fed in a recent interview:

I think it really builds on this idea that once the Fed adds a power to its toolkit, that power is usually expanded in the future. And I think that’s very much what we saw in 2020.

For me, the Fed’s likely future is troubling. There has been a lack of humility among U.S. central bankers over the last 15 years, and I expect that will continue. Fed chairs are always confident they are making the right moves at the right time in the right measure in applying their ever-growing powers and are properly balancing the risks that flow from their efforts to counteract market forces.

Smialek does not seem to share that view. Despite the concerns her research raises, she continues to believe we need the Fed “to back all of that up.” This conclusion overlooks the damage that was done by Powell and Brainard in 2020.