The markets today, viewed several hours before opening, appear set to open on a positive note with most major indices in the green at time of writing. While there is some nervousness about the U. S. Federal Reserve decision on interest rates, expected this afternoon, analysts do not expect any change.
The waiting and nervousness underline the evolution in the role of financial institutions such as ‘the Fed’ which are now in the limelight more than we would have dreamt before the financial crisis of 2008-2009 and the current crisis induced by the COVID19 pandemic.
The Fed’ had originally been set up with a 20-year charter in 1913 but got its first permanent charter in 1927. Over the decades, various events (and American Presidents) shaped its role. However, the largest watershed before the pandemic came with the financial crisis of 2008-2009.
Then-Fed Chair Ben Bernanke made a series of moves, all of them unconventional and some copied by other governments:
- Decreasing interest rates to the then-lowest ever in American history
- Successive rounds of quantitative easing
- Bailing out large financial institutions
- Forcing mergers of some financial institutions
- Lending funds to some sectors of the American economy to compensate for frozen credit markets
Generally, Bernanke gets credited for avoiding a depression, but the other result of his actions lies in the Fed’s increased aggressiveness in the American economy and the expanded length and breadth of its influence. It remains to be seen whether current Fed Chair Jerome Powell eventually takes a similar place in economic history.