The events of the original 11/2 were poetic in their symmetry. Congress stepped back from the action, and the Fed stepped forward. On that Tuesday, Americans cast their votes in the first midterm election of Barack Obama’s presidency and gave the Tea Party control of the House. Tea Party politicians had campaigned on a platform of policy negation and government shutdown, and they achieved their aims. The Obama agenda came to a grinding halt.
On that same day, an unelected committee of 18 people gathered for their regular meeting at the Federal Reserve. This committee, called the Federal Open Market Committee (FOMC) was led at the time by Chairman Ben Bernanke, who had a penchant for bold experiments. Bernanke enjoyed a level of autonomy that would be the envy of any U.S. president. When Congress created the Fed, it insulated the bank from voters, which allows the Fed to move fast in times of trouble. Bernanke used this power to great effect during the financial crisis of 2008, orchestrating large bailouts that propped up financial markets.
By 2010, however, the Fed looked like it might be out of options. The FOMC had already cut short-term interest rates to zero and kept them there. But Bernanke had devised an experimental way to do more: a program called quantitative easing (QE). This tool had been used only once before, in the heat of the financial crisis, and now Bernanke wanted to use it as a way to boost overall economic growth. This was a radical plan, and some members of the Fed’s policy committee warned against it. They argued that quantitative easing would only encourage risky lending without creating many real jobs. Over a period of years, Bernanke justified taking such risks in part because Congress wasn’t doing anything to help. On November 3, 2010, after the second day of their meeting, FOMC members approved Bernanke’s plan for $600 billion in quantitative easing. The Fed made itself central to America’s economic growth.
This was just the beginning. Between late 2010 and 2014, the Fed used quantitative easing to create about $2.3 trillion. To put that in perspective, that’s more than twice as much money as the Fed had created during the first 95 years of its existence. The bank crammed two centuries’ worth of new money creation into a few short years.