“It’s a unique situation, and Jay has the right attributes for dealing with it,” said Nellie Liang, who worked closely with Mr. Powell on financial stability issues as a Fed staffer and now is a senior fellow at the Brookings Institution. “He’s a person who can size up a situation very quickly and be decisive. I think he’s really well suited for this situation.”
In the space of just three weeks starting in late February, the Fed cut interest rates to zero, relaunched its program of bond buying on a mass scale, and initiated programs to support lending to all sorts of entities — sometimes more than one a day. It was as if actions that were spread out over 18 months during the 2008 financial crisis were squeezed into a single month.
“It’s clear that he saw that this was a serious risk early, and scrambled the staff to start doing some serious work, because they’ve been able to roll out a lot of stuff very quickly,” said William English, a former senior Fed staff member now at the Yale School of Management. “I credit that to Jay. I think his understanding of markets helped him to realize that this needed very serious attention early.”
The Fed’s era of mass-scale support for lending across all corners of the economy is only beginning. Mr. Powell essentially promised Congress and the Treasury Department that they could count on the Fed to help finance a gigantic lending program. The $2 trillion rescue legislation Congress passed last week includes $454 billion that can be paired with 10 times as much money from the Fed to support trillions in lending.
“He told me, ‘Think big,’ because the interest rates are low,’” House Speaker Nancy Pelosi said of Mr. Powell in an interview with PBS NewsHour last week.
None of this assures success. The economic crisis the United States faces has no modern precedent. The central bank is already facing tough questions about why it hasn’t done more to support lending to state and local governments, which are facing a fiscal crisis. And while it announced a “Main Street Business Lending Program” on March 23, aimed at small and midsize businesses, it is not yet up and running, and there are big open questions about how it might work.
In its rush, the Fed will face tough questions of where to draw the lines. For example, the emergency lending authority invoked for many of the new programs requires that lending must be “secured to the satisfaction” of the Fed, meaning expectations for repayment.