An ‘Epic Mistake’? Former NY Fed Exec Worries About Federal Reserve’s Ongoing COVID Response

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July 13, 2021

Peter R. Fisher spent more than a decade working at the Federal Reserve Bank of New York. Now, citing what he describes as “financial mania,” he has a warning about the actions of the Fed system of which he was once part.

“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,” Fisher tells FRONTLINE correspondent James Jacoby in the new documentary The Power of the Fed, premiering Tuesday, July 13. “And I think it — 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.”

Fisher, who left his role as executive vice president and manager of the System Open Market Account of the New York branch of the nation’s central bank in 2001, is just one of the former and current Fed insiders who speak to FRONTLINE in the new documentary, along with economists, journalists and titans of finance. From the award-winning investigative team behind Amazon Empire and The Facebook Dilemma, The Power of the Fed examines the roots of the Federal Reserve’s attempt to avert financial crisis when COVID-19 struck and how the institution continues to pump billions of dollars into the financial system daily, more than a year later — a process Fisher criticizes.

“It’s pretty basic in medicine that our doctor may give us a drug, which, in a small punchy dose, for a brief period of time, might help us recover from whatever ails us,” he says in the film. “But that the same medicine, the same drug, taken in massive doses over long periods of time, might kill us or make us ill or have perverse side effects.”

The Fed’s response to COVID, the film finds, is the latest chapter in an experiment begun after the 2008 crash that involves both lowering interest rates to almost zero, and creating new money and injecting it into the financial system in a process called “quantitative easing.” That experiment has been dramatically changing the American economy ever since — and was ramped up in a big way when the coronavirus pandemic hit, the filmmakers find, helping to avert a total economic meltdown.

“We’re lucky that the government was successful, or we could be living through a true depression,” Lev Menand, a former economic advisor to the Fed and the Treasury Department, says in the film.

While well-intentioned, the Fed’s experiment has delivered mixed results over the years, some experts say in the documentary, with the biggest benefits going to Wall Street rather than Main Street, wealth inequity widening and the risk of inflation growing over the past year, in particular. The Fed has insisted signs of inflation are temporary but has signaled it may taper quantitative easing and raise interest rates as early as 2023.

In the meantime, even some of those who have benefited handsomely from the Fed’s interventions are cautioning that the policies may bring about unintended consequences.

“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,” legendary investor Jeremy Grantham says in the above excerpt. “So we are playing with fire, because we have the three great asset classes moving into bubble territory simultaneously.”

Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, defends the Fed’s actions and impacts on the economy in the documentary.

“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.”

In the above excerpt, Jacoby presses Kashkari on whether the Fed’s policies have put the country on the cusp of a dangerous bubble and have fueled wealth inequality.

“These questions come from people who are keen Wall Street observers or Wall Street,” Kashkari says. “I never have once heard this line of questioning from a member of Congress that represents a low-income or minority district, never once. They come to us and they say, ‘Why can’t you do more?’ They never say, ‘Oh, my gosh, you’re just benefiting Wall Street,’ you know, ‘raise interest rates, because I want to keep Wall Street in check.’ They say, ‘Help my constituents find work.’”

“So that’s why, I mean, I find these questions amusing, because I hear them all the time from Wall Street. And these are folks who don’t care about what’s actually happening on Main Street,” Kashkari says. “I don’t hear it from Main Street and I certainly don’t hear it from low-income communities. And I have heard all of these questions before.”

For the full story, watch The Power of the Fed when it premieres Tuesday, July 13 at 10/9c on PBS stations (check local listings), or stream it on FRONTLINE’s website, YouTube and the PBS Video App. The documentary is written and produced by James Jacoby and Anya Bourg, with Megan Robertson as co-producer. It is supported by The WNET Group’s Chasing the Dream, a public media initiative that examines poverty, justice and economic opportunity in America. Subscribe to FRONTLINE’s newsletter to join an exclusive conversation about the making of the film Thursday, July 15.

Patrice Taddonio

Patrice Taddonio, Senior Digital Writer, FRONTLINE



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