Even if the Federal Reserve engineers a soft landing, the bank’s monetary policy during and after the pandemic will distort the housing market for years to come.
Even if he does oversee a soft landing for the US economy, Fed Chair Jerome Powell will not deserve a place in the annals of history as the greatest central banker of all time. Not because bringing down inflation without causing a recession is as much a matter of luck as of skill — and economists will spend years debating how much of each Powell had — but because the mistakes the Fed made in 2021 will haunt the US economy for years to come. That alone takes Powell out of contention.
In the spring of 2020, as the world was in full pandemic panic and the US economy was in free-fall, the Federal Reserve turned to the emergency playbook from the financial crisis: It cut interest rates to zero and restarted quantitative easing, buying up longer-dated Treasuries and mortgage-backed securities, known as MBS. This time, however, it went much bigger — expanding its balance sheet to $8.9 trillion in 2022, compared to $2 trillion in 2009.
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Allison Schrager is a senior fellow at the Manhattan Institute and a contributing editor of City Journal.
Photo by Drew Angerer/Getty Images
