Is the Federal Reserve omnipotent or impotent? In the aftermath of the 2008 crisis, the Fed embarked on what it called “unconventional monetary policy.” With the fiscal stimulus bills passed in 2008 and 2009 delivering too little direct government spending and the banking sector still reeling, there was no recovery in sight: consumers were still afraid to spend, workers were getting laid off, businesses were closing, and people were losing their homes. The Fed had already exhausted its usual tools: interest rates stood essentially at zero. In that emergency situation, it began the first of several rounds of “quantitative easing” (QE)—buying various assets from financial institutions, usually long-term securities, especially safe ones like US Treasury bonds. Much like the lowering of interest rates, QE injects liquidity into the financial system: money is cheaper and more abundant, so more businesses will borrow and take risks by investing or expanding production, which should stimulate the economy.

The Fed began by purchasing $600 billion in mortgage-backed securities, and after 2010 it continued to increase its activity in amount and duration, so that by 2014 it had committed some $4.4 trillion to propping up the financial sector. During the 2010s the European Central Bank likewise committed more than €3 trillion, with yet more from the Bank of England and the Bank of Japan. On top of that, the Fed extended at least $9 trillion in dollar swap lines, or dollars available to its fourteen favorite central banks around the world to borrow as needed.

That scale of response was unprecedented, but it was only the beginning of the ongoing career of unconventional monetary policy. In the vertiginous month of March 2020 the Fed fired all its conventional ammunition and then announced “QE Infinity”—a potentially limitless commitment to keeping the financial system alive. In practice, this meant another $5 trillion through late spring 2022, at which point the Fed’s balance sheet (meaning the total amount of assets it had purchased) peaked at about $9 trillion. Americans are often told that “we” can’t afford things like universal health care, free college tuition, childcare, supplemental nutrition assistance, clean water, functioning infrastructure, or the National Institute for Occupational Safety and Health, so the spectacle of the Federal Reserve, an institution specifically unelected and intentionally insulated from democratic accountability, splashing trillions of dollars to save the banks, including from a crisis of their own making, has been a source of some distress.

But central bankers themselves, and the experts who study them, believe that their power is sharply curtailed. There are statutory mandates that limit what they can do (in the case of the Fed, a dual mandate to achieve price stability and full employment), and they are given a limited set of policy tools, mostly short-term interest rates. They do not have the expertise, the legitimacy, or the intention to solve climate change, inequality, health care, or any other political economy problem. Monetary policy cannot substitute for failures of legislation. Moreover, if the unelected Fed took policy stances that ran contrary to Congress, Congress could revoke its charter. Central bankers also care a lot about their credibility, because they believe that the efficacy of their policies depends on financial markets taking them seriously when they speak. For that reason, they are very reluctant to speak on subjects that exceed their expertise; doing so risks a cascading crisis of their authority.

The point remains, though, that when the Fed wants to do something, it seems able to find a way to do it. Even under its dual mandate, the Fed has a wide latitude to determine what constitutes “price stability” and how much employment is “full.” Moreover, the Fed does many things not stipulated in the mandate: it supervises banks, assesses financial risk, manages payment systems, and investigates consumer complaints about financial institutions’ legal and regulatory violations. Some commentators have recently argued that climate change may pose a credible threat to financial stability.¹ So might inequality. In 2019 a former president of the New York Fed (one of the twelve regional banks in the Federal Reserve System) published an op-ed arguing that the prospect of Donald Trump’s reelection fell within the Fed’s purview because it plausibly represented a threat to the global economy.

As part of Trump’s drive to profane every aspect of the legal and moral order of American liberalism, he has been trying to end the Fed’s independence. He wants it to lower interest rates, which it is unwilling to do because inflation risks remain. Since last summer he has attempted to fire Fed governor Lisa Cook, citing accusations of mortgage fraud—so far blocked by the Supreme Court, which heard arguments in January and appeared skeptical. Fed chair Jerome Powell’s term is up in May 2026, and in January federal prosecutors opened a criminal investigation into his testimony over the renovation of the Fed headquarters. What will follow may prove to be the most dangerous test yet of both American economic governance and the place of the dollar in the global capitalist system. It is more important than ever that the widest possible public understands what the Fed does, how it has changed, what it can do, and what Trump’s threats to it mean.

The story of QE has led to calls to democratize the Fed, especially on the political left, which observes that so much power vested in unelected technocrats poses a clear contradiction to any kind of egalitarian or democratic ethos. Leah Downey’s Our Money is the latest book to take up this argument.

Downey is a political theorist, and it shows. Her book proposes a new institutional design for central banks, to explore “how large, modern, complex democracies, especially the United States, would govern the creation of money if democracy mattered.” Her focus is not on central banking writ large but rather on the process of money creation specifically, and the part central banks play in it. She draws throughout on figures like Jean-Jacques Rousseau and Benjamin Constant to think about what constitutes substantive democracy. As she puts it:

The power to create money is bound up with the democratic project. Who gets to decide if, when, and on what terms we create money influences how we relate to one another and thus the possibilities for collective self-government.

Her diagnosis is straightforward: the problem is unhealthy delegation, not independence in general. “What matters,” she writes, “is how the ceding of power is structured, not how much is ceded. We need the legislature to more regularly and openly reconsider the Fed’s decisions and the framework within which it makes them.” She calls this process “iterative governance,” and it could take various forms, like Congress issuing annual credit guidance (deciding which sectors get access to credit on what terms) or “developing a politically determined preferred asset taxonomy to guide monetary policy” (for instance, giving preferential treatment to the credit needs of socially beneficial firms). At an extreme, Congress could periodically recharter the Fed.

Downey poses iterative governance in contrast to the more common form of “guardrails-and-compliance” institutional design, which limits the range of an institution’s powers and then leaves how these will be exercised to the institution’s discretion. Central bank independence is a way of setting guardrails and then stepping back, but that is itself a political act, and as she points out, “The decision to depoliticize does not eliminate the political nature of the tool.” Her call is for elected officials to recognize and embrace the political acts they are already performing, and thereby to democratize monetary policy not just through something like direct elections of the Fed board but through a wider idea of what political action means. The current abdication of that political responsibility has direct consequences:

Political power over the creation of money in most modern democracies is delegated three times: from the people to their elected officials, from those officials to unelected bureaucrats, and from those bureaucrats to private banks….[It] further empowers one particular group of citizens, who are themselves already powerful by virtue not of their citizenship but of their wealth.

Our Money contains a lot of creative thinking and has something new to say about what a politicized central bank might look like. It can also be difficult to read. For example, Downey spends much of the first third on the fact that the Fed pays interest on the reserves that it requires from commercial banks, which is certainly a free handout, but it’s both a difficult technical subject and not nearly of the magnitude of QE. There are a lot of acronyms and a lot of idiosyncratic definitions.

More significantly, Downey can’t solve the Trump problem. Central bank independence clearly benefits banks, asset holders, and the wealthy in general, and the idea of democratizing and politicizing the Fed sounds appealing, but not if it has the same results as politicizing the CDC and the Supreme Court. The idea of Congress “knowing and regularly showing” its power over monetary policy must be squared with who is actually in Congress. Donald Trump is trying very hard to politicize the Fed. We will see what that looks like. In most cases, an autocrat controlling a central bank has resulted in high and continual inflation, because cheap money is a short-term stimulus that is useful for winning elections or paying for implausible adventures, even if it leads to long-term problems.

That outcome seems likely, but as in so many other cases, the bigger question is whether Trump is just another petty right-wing dictator or whether we are living through a permanent epochal rupture. If it is the latter, the Fed is one of the last remaining obstacles to the unfettered expression of Trump’s infantile will, one of the few institutions with the power to oppose an unhinged centibillionaire like Elon Musk. A generalized loss of credibility in the Fed could mean global economic chaos on a scale we have not seen since the interwar period, and that parallel is not encouraging.

This problem is best encapsulated in the book’s subtitle: Monetary Policy As If Democracy Matters. In many ways and to many people, democracy doesn’t matter, which the “as if” already recognizes. The project of making it matter seems like it must come first, and it is substantially more daunting than even the iterative governance designs of the book.

When considering institutional change, it is useful to have a sense of how things used to be different and how deep the current structures go. Moving from money creation to banking supervision, Peter Conti-Brown and Sean Vanatta’s Private Finance, Public Power tells the story of “the evolutionary outgrowth of unrelated decisions” that together “eventually creat[ed] a system that creaks and groans” with “mismatched parts, crafted at different times for different purposes.” They are the right people for the job: Conti-Brown’s ThePower and Independence of the Federal Reserve (2016) is a superb history of the Fed, and Vanatta’s Plastic Capitalism (2024) is a thorough one of the credit card industry. They begin in the early Republic and end in 1980, with illustrative vignettes presented between chapters. It is the most entertaining book about banking supervision ever written.

Regulation means writing rules, and most banks and industries strenuously resent it. Supervision is about identifying, monitoring, managing, and resolving risks, often with a high degree of discretion, and often with participation from the supervised. Banks sometimes appreciate it, because it is difficult or expensive to do themselves, and it is useful to know that other banks are also being supervised. Conti-Brown and Vanatta call it a “middle ground, a negotiated space where private and public sometimes contest power, sometimes collaborate in it, but always manage that power together.” Nevertheless, they are clear that the financial system is composed of private interests, along with public institutions that are expected to manage risk created by those interests, and that the discretionary power of supervisors means supervision is “profoundly interpersonal,” based on “competing conceptions of what that individual relationship should be.”

The story begins in the early decades of the nineteenth century, when banking supervision was more adversarial. Commercial banks would issue their own paper money, allegedly backed by some kind of reserves, so the Bank of the United States (a short-lived proto–central bank) would occasionally gather some of it up and take it to the issuing bank to be exchanged, thereby testing the bank’s credibility. That permanent implicit threat made banks cautious, which probably meant less lending, fewer risks, and less money in circulation than was ideal. The solution was to create a group of professional bank examiners, modeled on steamboat engine inspectors, answerable to the comptroller of the currency. The first comptroller, Hugh McCulloch, set about building a permanent functional bureaucracy during the Civil War.

But the examiners were too few, and there were too many opportunities for corruption. The vast expansion of banks and deposits from the 1870s onward meant there were more risks, and risks could travel in ways examiners could not. Supervisors depended on bank shareholders to fill the gap, knowing that if their bank failed they would lose their own investments. Banks developed pools of shared capital called clearinghouses that could be drawn on by individual institutions facing panics. But it was never enough, and banking panics or failures were endemic through the end of the nineteenth century.

The Federal Reserve was created in reaction to the 1907 panic, which ended when J.P. Morgan organized a clearinghouse to bail out the rest of the financial sector. In the usual fashion of American governance, the clearinghouse did not replace the existing structure of supervision so much as add a new layer to it. The layer was intended to be mostly private: the first vision of the Fed essentially formalized the clearinghouse system into a rules-bound institution with its own resources. But the Fed also worked at cross-purposes to the comptroller. The comptroller’s supervisors would depend on the threat of failure and shareholder liability to keep bank managers in line, while the Fed would provide liquidity in the case of crisis, which incentivized riskier behavior because bankers could gamble on a bailout. Neither had an ability to intervene proactively. An examiner could order a bank to be closed, though not to change its ways: as one comptroller put it, the only punishment was death.

This system came crashing down during the Great Depression, when some nine thousand banks failed and millions of people lost their savings. The blitz of New Deal legislation in 1933 created the Federal Deposit Insurance Corporation (FDIC)—another public institution that shares responsibility for managing banking risk—as well as the Emergency Banking Act, which allowed the government to buy equity stakes in some five thousand banks and thus gave it the power to impose rules and practices. The chair of the FDIC also headed the Office of Alien Property Custodian, which was responsible for the seizure and liquidation of the property of interned Japanese Americans.

The institutional results of the Depression meant more supervision, more regulation, and more systems of safety, such that the postwar decades were marked by a boring, constrained, and repressed banking sector. In the 1960s banking supervisors were pushed reluctantly toward managing political risk, as civil rights and consumer groups demanded transparency, urban reinvestment, and accountability for racial redlining. This proliferation of supervisory tasks has continued, producing a commonly held view, as Conti-Brown and Vanatta put it, that “bank supervision should also be about rooting out past injustices and penalizing them through present enforcement.”

Private Finance, Public Power ends in 1980, with a few gestures toward what has followed. The theme is clear: from the 1980s through the 2010s, Congress has increasingly given supervisors and supervisory agencies more authority. Here again, we may be living through an ending. When the Supreme Court overturned the Chevron doctrine in 2024, it opened the possibility of ending all federal agencies’ ability to interpret statutes. In any case, last October the Trump-appointed FDIC’s and comptroller’s offices together issued a proposal to prohibit the use of reputational risk by regulators and supervisors, meaning past misconduct should be disregarded. One month later the Fed announced new supervisory principles that will focus only on “material financial risks” and instruct that supervisors “should not become distracted from this priority by devoting excessive attention to processes, procedures, and documentation.” The new rule is to follow fewer rules.

The Federal Reserve manages the dollar, which is the most important currency in the world. About 60 percent of global central bank reserves are held in dollars, meaning they are used to back the value of currencies around the world. Outside the eurozone, more than 70 percent of global trade is conducted in dollars. Dollar assets, especially US Treasury bonds, are the safest in the world, and when the Federal Reserve changes its interest rate, it has global repercussions for financial markets and government solvency because so many countries borrow in dollars. In Our Dollar, Your Problem, Kenneth Rogoff, an eminent economist at Harvard and former chief economist of the International Monetary Fund (IMF), sets out to tell a kind of history of the dollar’s part in the international economy, from the stable years of the Bretton Woods system (in which other currencies were pegged to the dollar and the dollar was pegged to gold) until today, pausing to consider the fates of rival currencies.

The book is very strange. It is not for beginners: Rogoff doesn’t get around to explaining what the IMF is until page 177; some subjects are presented with full technical complexity; most of the figures and controversies are likely to be obscure to the general reader. No event or crisis is thoroughly narrated, only Rogoff’s part in it or his opinions about it. Nor is it a book for experts, who will not benefit from his impressionistic glosses and who are likely already familiar with his work. It does not pretend to be a comprehensive history; rather it’s an insider’s view, so the focus is Rogoff himself: his personality, his subjectivity, his judgments and friends and insights. But it’s also not a memoir, in that it makes no effort to relate the author’s life story separate from how it intersects with the dollar system.

Rogoff is, along with Carmen Reinhart, the author of This Time Is Different (2009), a history of government debt crises over eight hundred years with an intentionally ironic title. Rogoff does not hesitate to tell us that it peaked as the fourth-best-selling book on Amazon. Arguing that “excessive debt accumulation” is the primary danger to economic growth, the book (along with Rogoff’s and Reinhart’s academic work and their many public interventions) was a core part of the intellectual justification for austerity after the 2008 crisis.

Austerity was a moral, political, intellectual, and humanitarian failure, possibly the single worst and most socially destructive economic idea perpetrated on the world so far this century. Whether it can be blamed for the persistent recessions that followed is difficult to answer conclusively, but it clearly did not generate growth. Instead, it contributed to the collapse of democratic legitimacy through which we are still living: across the developed world, with the notable exceptions of Germany and Canada, whichever long-standing legacy political party was in power in 2008 was replaced by its rival by 2012, as voters were repulsed by bank bailouts and public sector budget cuts. Labour was replaced by the Tories in Britain, Conservatives by Socialists in France, Fianna Fáil by Fine Gael in Ireland, center-left PSOE by center-right People’s Party in Spain. From 2011 to 2013 Italy was governed by an unelected technocrat chosen by the European Central Bank. Belgium went 541 days unable to form a government and then enjoyed more rapid recovery than elsewhere. It was better to be governed by nobody than to have austerity.

Those rival parties mostly continued austerity, which then resulted in a more general collapse of political legitimacy and the rise of radical politics on both the right and the left. Podemos in Spain, Syriza in Greece, Brothers of Italy, Viktor Orbán’s Fidesz in Hungary, and probably the success of both Bernie Sanders and Donald Trump are all reactions to the centrist consensus on austerity. The political right has now triumphed nearly everywhere.

Austerity was also a human disaster: in a series of publications, social geographers and epidemiologists have found good evidence that cuts to health care, nutrition assistance, winter fuel allowances, pensions, and mental health services may together have produced tens of thousands of excess deaths across Europe between 2011 and 2019.² To be very clear, Reinhart and Rogoff are not responsible for the results of austerity. But they did advocate for austerity even though its merciless conclusions were both predictable and predicted. That this happened at the same time as QE is the point: capital got trillions in liquidity; workers got austerity.

In 2010 Reinhart and Rogoff published a short essay in the American Economic Review called “Growth in a Time of Debt.” It purported to show that any time a country’s public debt exceeded 90 percent of its GDP, growth sharply declined. This claim was widely cited by politicians and accepted as a factual justification for austerity, to the extent that Paul Krugman thought it “may have had more immediate influence on public debate than any previous paper in the history of economics.” In 2013 a then Ph.D. student (now an economist at John Jay College) named Thomas Herndon attempted to replicate their study and found grievous errors in their data. The result was a scandal with absolutely no professional consequences. Rogoff refers to this episode in a long endnote—he never fully explains it, so unfamiliar readers will be baffled, and he defends the paper by arguing that it was preliminary and impressionistic, that later versions fixed the “one” error, and that anyway, his critics were heterodox types, one of whom had once signed a letter stating that Venezuelan elections were legitimate.

Rogoff introduces people only by their professional accolades and their relationships to himself. No name goes undropped, and he is very interested in settling scores and tallying up who was right about what. He would like you to know that he is very good at chess, that he has had whispered chats with George Soros, and that he causes progressives to go “into convulsions.” He admires the noted romantic Larry Summers, who “can proffer concise, brilliant thoughts on almost any topic.”

Near the start of the book Rogoff dwells on the case of the US forcing Japan to allow the yen to double in value between 1985 and 1987, which undercut its export industries. He blames Japan’s 1990s depression on overinvestment and too much debt, but muses that “one wonders what might have happened if Japan had not been forced to allow the huge currency swing in the mid-1980s.” He then moves through the East Asian financial crisis of 1997 and into the crisis of 2008. Each of these events was a disaster for some people, and each might plausibly be an occasion for humility and reflection because they are also events for which the US government, the American financial system, and the IMF all could take some blame. Instead Rogoff performs a version of the “Freud’s kettle” defense: the crises weren’t as bad as they could have been; they were bad but were going to happen anyway because of the “impecuniousness or poor financial regulation” of other countries; they were bad, but nobody could have done anything differently. He concludes the book by observing, “If one learns nothing else from examining the evolution of the global currency system over the past seven decades, it should be that surprising changes can and do happen.” Indeed: each time is different.

All three of these books deal with the fact that policymakers have been on a constant quest for what the economist Dan Davies in his book The Unaccountability Machine (2024) calls an “accountability sink.” This is a structure that combines delegation and rules-bound decision-making to sever the link between people affected by decisions and the continued operation of the decision-making system. Being able to override decisions that may be dangerous or stupid also makes one accountable for outcomes, a risk that most powerful individuals don’t want to take. As a result, accountability sinks are not accidents or failures; they are actively sought and maintained by people who want decisions to happen but do not want to face their consequences.

As Downey argues, Congress does not want to be accountable for monetary policy. As Conti-Brown and Vanatta show, neither Congress nor banks want to be accountable for the accurate diagnosis and management of financial risk. The Fed does not want to be accountable for the international consequences of dollar hegemony. As Rogoff puts it, “Fed independence just does not extend to its own foreign policy.” Economists do not want to be accountable for the human suffering that results from their ideas. Central banking and financial regulation are ferociously technical subjects that the public has little practice understanding. That opacity is another kind of accountability sink: you didn’t lose your job because we made a decision; you lost your job because of credit rigidities from short-term interest rate adjustments targeting the nonaccelerating inflation rate of employment.

Too often, the argument for democratizing central banks has been a way of avoiding a prior failure of democracy. Legislatures have been sclerotic or repressive, and as the political scientist Martin Gilens (and a large subsequent literature) has shown, since the 1980s policy outcomes have had effectively no connection to the preferences of poor or middle-class Americans unless their preferences align with those of the rich.³ If Congress refuses to act on climate change, inequality, and racial discrimination, the thinking goes, maybe the vast power of the Fed could do the job instead. But there is no reason to believe that a democratized, politicized Fed would take up progressive causes rather than, say, become an unstoppable money-creating arm of the fascist grifter industry.

What is new in our current moment is that the drive to politicize central banking is coming from a political formation fundamentally committed to its own impunity. Donald Trump is trying to end the Fed’s independence to make it accountable to him, and its current form limits the reach of his own unaccountable actions. But he is just the grotesque excrescence of an elite obsessed with avoiding consequences, and proof that a politics of democratic accountability is going to require not expertise but confrontation. The Fed is not a mechanic, it’s a battleground, and it’s now impossible to pretend otherwise.