. . . The Fed’s choice to use its emergency lending authority under Section 13(3) of the Federal Reserve Act to forestall the banking crisis revealed the two-tiered system under which we operate. Whose emergencies count at the Fed? “Often when the Fed says it cannot do something, what it really means is that it does not want to … Laws can be stretched,” The New York Times’ Jeanna Smialek writes in her recent book on the Fed’s COVID crisis response about its resistance to supporting states and municipalities.
Indeed, when and for whom the Fed is willing to stretch is precisely the issue. Historically and today, the Fed has stretched the employment mandate beyond recognition. On the other hand, though the inflation mandate calls for “reasonable” price stability, the Fed has remained wedded to a vision of this as 2 percent inflation, regardless of the unique circumstances of the recent inflation.
For those of us interested in economic stability for everyone, it has been hard not to see the inequities of the response to the SVB collapse. If the household balance sheets of two million workers were crushed by the Fed’s hiking trajectory, then so be it; that was basically the point. But if banks’ balance sheets were in peril, then it’s all hands on deck, emergency facility and all . . .
