FRONTLINE: The Power Of The Fed
Tuesday, Nov. 29, 2022 at 10 p.m. on KPBS TV + Thursday, Dec. 1 at 10 p.m. on KPBS 2 / On demand now with PBS Video App
When COVID-19 struck, the Federal Reserve stepped in to avert economic crisis. As the country’s central bank continues to pump billions of dollars into the financial system daily, building on an unprecedented strategy it began after the 2008 crash, who is benefiting, and at what cost? FRONTLINE investigates "The Power Of The Fed" — and how the central bank’s actions have played out over the years on Wall Street versus Main Street — in a gripping new documentary.
From the award-winning investigative team behind "Amazon Empire" and "The Facebook Dilemma," the film traces how an experiment the Fed began after the 2008 crash has been dramatically changing the American economy — exploring criticisms that, while well-intentioned, the Fed’s efforts have contributed to wealth inequality, helped today’s financial world grow far removed from the real-world economy, and prompted fears of growing inflation and an impending crash.
“I feel as anxious today as I’ve ever felt about the financial world because of my belief that the Fed has been pumping up asset prices in a way that is creating a bit of an illusion,” Peter Fisher, who spent years at the New York Federal Reserve, tells correspondent James Jacoby. “I think the odds are now sort of one in three, very high, that we will look at this as an epic mistake and one of the great financial calamities of all time,”
A year in the making, "The Power Of The Fed" is an in-depth investigation supported by The WNET Group’s “Chasing the Dream,” a public media initiative that examines poverty, justice, and economic opportunity in America. Written and produced by Jacoby and Anya Bourg, the documentary draws on interviews with current and former Fed officials, economists and titans of finance.
The film goes back to the beginning of the Fed’s experiment to trace how, after the 2008 economic collapse in which investors, speculators and Wall Street bankers nearly brought down the global economy, the Fed lowered interest rates to almost zero and began “quantitative easing”— creating new money and injecting it into the financial system, buying up bank assets with the idea that it would stimulate economic growth.
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“So many of these tools had not been tried before,” says Sarah Bloom Raskin, who was on the Fed’s board of governors at the time. “They were definitely break-the-glass kind of tools. Like, what are we going to do in order to restart the economy here?”
“The idea was that the Fed was trying to get more credit and cheaper credit into the hands of the average American,” says Andrew Huszar, who was called on to lead the unprecedented program. “There were millions of people losing their jobs, millions of people in mortgages that they couldn’t afford, and how could the Fed use its financial tools to actually help the average American?”
Instead, Fed insiders and experts tell Jacoby that while the Fed’s actions had some benefits on Main Street, the biggest ones went to those on Wall Street. “I was single-handedly responsible for directing the deployment of $1.25 trillion of Fed funds, and we did not see the knock-on benefits that we had hoped for the average American,” Huszar says. “As much as we wanted to, as much as we hoped that it would happen, it wasn’t happening.”
Nobel Prize-winning economist Joseph Stiglitz tells Jacoby, “The immediate objective of saving the banking system was achieved, but the broader objective — which was helping the economy recovery quickly in a robust way, in a way with shared prosperity — total failure.”
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While the Fed’s impact on Main Street remains a source of debate, the film finds that most agree it undeniably fueled the massive growth of the financial sector — ushering in what some have called a “Golden Age” for Wall Street.
“In a way, we’re like a giant bloodsucker and we have more than doubled in size and [are] sucking more than twice the blood out of the rest of the economy,” legendary investor Jeremy Grantham says in the film.
The film examines how, when COVID hit, the Fed doubled down on its experiment, once again infusing trillions of dollars into the financial system to stave off collapse and amping up quantitative easing — and even taking the unprecedented step of buying up corporate debt.
“We’re lucky that the government was successful or we could be living through a true depression,” says Lev Menand, a former economic advisor to the Fed and Treasury Department.
But the moves also sent stock and bond prices soaring in a sustained bonanza for the wealthiest Americans, raising questions about whether the Fed was rewarding the wrong people and providing a backstop for risky behavior.
In a wide-ranging interview, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, defends the Fed’s actions and impacts on the economy.
“The Fed has been on a mission, I’ve been on a mission to put Americans back to work and help them get their wages up, especially for those lowest income Americans,” Kashkari says. “And if it’s had some effect on Wall Street, to me, the tradeoff is well worth it if we can put Americans back to work, so that they can put food on the table, they can take care of themselves. That is profoundly beneficial to society.”
Jacoby pressed Kashkari on whether the financial sector has come to expect bailouts. “Well, I completely agree that it is unacceptable that 12 years after 2008, we had to do this again,” Kashkari says. “I am proud that we did what we did, it was the right thing to do, it was necessary. But it is unacceptable as an American citizen that we have a financial system that is this risky, and this vulnerable.”
The Fed insists the signs of inflation percolating through the economy are temporary, but has signaled it may taper quantitative easing and raise interest rates as early as 2023. Many observers are concerned that in the meantime, the Fed is helping to fuel a bubble in the markets that will inevitably pop.
“They have the housing market, the stock market and the bond market all overpriced at the same time. And they will not be able to prevent, sooner or later, the asset prices coming back down,” Grantham tells FRONTLINE. “So we are playing with fire because we have the three great asset classes moving into bubble territory simultaneously.”
"The Power of the Fed" is a compelling investigation of one of the most epic economic experiments in American history, the ways it has reshaped America’s economy, and its consequences.
“Nobody knows,” famed investor Howard Marks says, “how this is gonna turn out.”
Related: Who Is on the Federal Reserve Board?
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"The Power Of The Fed" premiered Tues., July 13, at 10/9c on PBS and will also be available on demand at pbs.org/frontline, YouTube and the PBS Video App.
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A FRONTLINE production with Left/Right Docs. The correspondent is James Jacoby. The writers and producers are Anya Bourg and James Jacoby. The co-producer is Megan Robertson. The senior producer is Frank Koughan. The executive producer of FRONTLINE is Raney Aronson-Rath.