We are now starting to see a wave of books about the COVID-19 pandemic and the bounce-back from a very deep, but also very brief, recession in the spring of 2020. Nick Timiraos’s Trillion Dollar Triage is one of these books, examining the Federal Reserve’s pandemic response, and in particular the role that Chairman Jay Powell played in the response. Timiraos is the Wall Street Journal’s chief economics correspondent and not coincidentally his beat is the Federal Reserve and U.S. economic policy. Trillion Dollar Triage is his first book.
Powell: the early years / The first third of Trillion Dollar Triage provides important background information. Chairman Powell’s early career path is described, with a focus on his stint at the Treasury Department under Secretary Nicholas Brady, including during the instability in the commercial and residential real estate markets in the early 1990s. There is also a concentrated history of the Federal Reserve, from the Panic of 1907 that brought the Fed into existence to the term of Chairman Ben Bernanke, who presided over the response to the housing bubble collapse. The book describes the horse-trading that led to Powell’s nomination to the Fed’s Board of Governors by President Barack Obama in 2011, as well as Powell’s efforts to turn back the “Audit the Fed” movement during his full term on the board that began in 2014. Also included is a telling of President Donald Trump’s interviewing of Fed chair candidates after he decided not to reappoint Janet Yellen in 2018. Among those on the short list were Stanford’s John Taylor and former Fed governor Kevin Warsh, as well as Powell. After Powell’s ascension to Fed chair, Trump asked his advisers if he could fire Powell just like he had become accustomed to doing on his TV show The Apprentice.
Echo chamber / As expected from a book on the pandemic, the early, turbulent months from late February to the end of April 2020 occupy most of Timiraos’s remaining narrative. In tabular form, he tracks for the reader the number of COVID-19 cases and deaths over time, as well as the Dow Jones Average and the VIX Fear Index, which indicates the extent of market volatility.
Timiraos does a good job explaining exactly how over-the-top Powell’s monetary and lending interventions and his support of a fiscal spending spree actually were. Those first days made clear that the Fed would be reversing its long-promised normalizing of conditions after the 2007–2009 crisis, with interest “rates back to zero and the [Fed’s] balance sheet growing again.”
Powell was also building a team of crisis fighters. He chose Fed governor Lael Brainard to work on preparing lending backstops like those used in response to the financial crisis. Timiraos explains, “Powell knew Brainard also shared his activist monetary approach to the oncoming storm.”
Timiraos does not consider it, but this strategy of pulling together like-minded thinkers may have led to groupthink and may have been part of the reason that the Board would later prove so wrong on its inflation assessments. There was rarely a dissenting voice at the table when it came to monetary policy and Fed lending. Timiraos describes one of the pandemic’s more hectic weeks: “With the Treasury market melting down, Powell faced little opposition to these market-stabilizing measures.” A later decision to accept short-term municipal debt as collateral for funding facilities took all of two hours to go from initial suggestion to approval to public announcement.
Brainard in some ways was even more aggressive than Powell or his predecessors in expanding the Fed’s lending programs, as soon nearly every sector of the financial market was poised to benefit from a bailout: “Brainard was pushing the Fed and the Treasury to accept more risk.” One by one, Powell and Brainard justified new support programs, sometimes by merely pointing to other previously supported sectors. “If the Fed was going to buy corporate bonds, it needed to do something for municipalities too,” Brainard rationalized in her no-sector-left-behind strategy. Because she did not really know much about the municipal market, she reached out to Kent Hiteshew, who Timiraos describes as one of the crowd of “well-off New Yorkers with second homes outside the city.” During the Obama years, Hiteshew managed the Treasury Department’s response to Puerto Rico’s fiscal and debt crisis, and Brainard peppered him with questions about what was happening in the municipal market. Soon she was asking him to work for the Fed for a few months.
Many of the pandemic interventions went well beyond the scale of those used in response to the financial crisis. Concerning the purchase of municipal bonds, Timiraos writes, “It represented another foray across red lines that Ben Bernanke hadn’t been willing to cross in 2008, when Fed officials considered but rejected the idea of purchasing muni securities.”
The interventions did not stop there. The Fed agreed to purchase exchange-traded funds (ETFs), “one of their most controversial decisions,” according to Timiraos. The ultimate controversy occurred when
Powell began toying with an even more provocative question: whether to purchase the debt of companies that weren’t rated investment grade — so called high yield or junk debt. Years of relying on easy credit and low rates … had encouraged companies to load up on debt.
Powell and Brainard recommended that the Fed extend its lending to companies rated triple‑B and purchase ETFs that invest in junk debt: “Powell decided it was better to err on the side of doing too much than not doing enough…. Sometimes you have to save the undeserving few to protect the deserving many,” explained one high-ranking official.
Powell and fiscal matters / Timiraos chronicles how Powell stepped out of his lane and engaged in advice on the fiscal front, telling House Speaker Nancy Pelosi and other lawmakers: “Think big, interest rates are low…. This is the big one. Whatever fiscal support you can provide, do it now, and do it in the form of grants and not loans.” Congress led the way on this, with little push-back from the Trump administration. Unlike most scenarios where the White House leads, “the Treasury had no plan [and] the White House had no plan.” This unconstrained approach no doubt caused the ultimate price tag to be higher
This lack of constraint played out in the case of a Treasury backstop for loans to airlines, cargo carriers, and other firms affected by the virus. The negotiations began with a $50 billion spending cap, but it quickly expanded to $500 billion, only a fraction of which would go to the original targeted industries. When the deal was presented to Republican lawmakers, “there was no pushback.” Powell expressed sympathy for the plight of these risk-takers: “Their business isn’t closed because of anything they did wrong. This is what the great fiscal power of the United States is for — to protect these people as best we can from the hardships they’re facing.”
Were we really at risk of a Depression? / Throughout the book, Timiraos makes the case that “it was hard for economists and other policymakers to grasp just how suddenly and dramatically the economy was slamming to a halt.” But clearly the 1918 Spanish flu pandemic provides some precedent, as that period saw a deep drop of the economy into recession by August 1918, and it emerged out of recession by March 1919. Despite its severe depth, through 2019 that was the second shortest recession on record, totaling all of seven months. Yet, Timiraos concludes about the COVID contraction, “Quick action stopped a financial panic and averted a potential depression in March 2020.” This is a conclusory statement with no supporting evidence that a depression is the most likely outcome of a pandemic.
Powell fan / I have been tracking the promotion and release of Trillion Dollar Triage since the early months of 2021, when I noticed Timiraos took a break from Twitter and I suspected he was writing a book on the pandemic response. I was somewhat stunned when I read one of the publisher’s initial promotional write-ups on the book in September 2021:
How is it possible that a once-in-a-century pandemic that left millions of Americans jobless didn’t destroy the American economy? The short answer: Jay Powell and the Fed. TRILLION-DOLLAR TRIAGE is the inside story of our least well known national hero…
This gushing description is no longer being used to market the book, although it lingers in the deep corners of the internet. The book’s subtitle is in the same vein, although the praise is toned down a bit. It is not aging well, given the current economic situation and rising inflation. You might dismiss this as the work of an overzealous publisher, but usually authors review promotional materials and subtitles.
Besides, the book makes clear that Timiraos believes that Powell and the Fed struck a proper balance in their response during those critical months. Timiraos credits Powell for “his sound leadership during the pandemic” and for being the “the architect of a bold rethinking of monetary policy.” He also praises Trump treasury secretary Steven Mnuchin for following Powell’s lead in taking an aggressive stance to support market interventions: “Someone from the administration was finally providing a measured message to reassure markets — one that the combative Trump seemed incapable of delivering.” Timiraos applauds Mnuchin for lobbying for a waiver of bank capital requirements to support a program to backstop money market mutual funds. Mnuchin got wind of resistance from another Trump appointee, comptroller of the currency Joseph Otting. Showing borderline hysteria in his zeal for the waiver, Mnuchin challenged Otting: “What do you mean you’re not doing it, Joe? Yes, you are doing it. This is a matter of national security we’re talking about, and you are doing it.” Otting relented.
On fiscal issues, Timiraos compliments Powell and the Congress for their many interventions:
He may not have been an economist, but Powell’s background almost perfectly suited him to the moment…. [The American People needed answers and hope] in part from a major relief package that Congress had put together with lightning speed over the past seventy-two hours.
Timiraos shares with readers his lessons learned from the 2007–2009 crisis, which closely track Powell’s aggressive 2020 philosophy: “Lesson one: Go big. Lesson two: Go fast.” My personal preference is to read a historical summary from an author who takes a more critical approach.
Conflict with the evolving narrative / The Fed’s pandemic response was so big and so fast that I believe it contributed greatly to inflation gaining a foothold in the U.S. economy after a 40-year slumber. When Timiraos was finishing the book in 2021, the prominent narrative was that the mix of Congress’s fiscal response and the Fed’s 2020 accommodative policy propped up the economy and the financial system, with a minimum of ill effects. But now it seems that Powell overdid the monetary stimulus, the lending programs, and support for fiscal stimulus. He was spectacularly wrong on labeling the inflation “transitory,” a statement that economist Mohamed El-Erian has described as “probably the worst inflation call in the history of the Federal Reserve.” The Fed failed in its pandemic response in one of its primary mandates under law: price stability. By encouraging fiscal profligacy, Powell no doubt made inflation worse.
The transition to an inflation narrative over the past year might explain the unimpressive early book sales for Trillion Dollar Triage as compared to some of the books from the financial crisis. Timiraos also had some misfortune as those mediocre sales numbers reflect the world’s focus on the Russian invasion of Ukraine, which happened mere days before the March 1 release date of Trillion Dollar Triage. But by mid-spring, a Warren Buffett endorsement gave the book’s sales a boost.
