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What The Actual Fed.

Optimist Economy

Tue Feb 17 2026

Summary

Episode Overview

Podcast: Optimist Economy
Episode: What The Actual Fed.
Date: February 17, 2026
Hosts: Kathryn Anne Edwards (Economist), Robin Rauzi (Editor)

In this episode, Kathryn and Robin take listeners on a deep dive into the Federal Reserve (the Fed)—covering its history, functions, and why it matters right now, especially with Jerome Powell's chairmanship ending, the political crosswinds around new appointments, and growing public scrutiny. The goal is to clarify the sometimes mystifying workings of the Fed and highlight why current events make understanding it more important than ever.

Key Discussion Points & Insights

1. Why Talk About the Fed Now?

Jerome Powell’s Term Ending: Jerome Powell's term as Fed Chair ends in mid-May, and the President has nominated Kevin Warsh to replace him. Trump is pursuing greater control over the Fed amidst unprecedented political and legal pressure.
General Confusion: Even well-read individuals find the Fed complex. Kathryn reassures listeners: “If you don’t know what’s going on with the Fed, you’re in amazing company.” (00:53)

2. The Structure and Independence of the Fed

Board of Governors: Seven members (six governors + chair); Governors serve 14-year terms, chair serves a 4-year term. Appointed by the President and confirmed by the Senate. Once confirmed, they are very difficult to remove.
Chair Retention: Powell can remain as a governor after his chairmanship because his original appointed term runs until 2028 (07:10–08:44).
- Kathryn explains: “If you were on the board and you became chairperson like Powell did, you can return to the board and fill out your term as governor. Nobody’s done that for a long time…” (08:08)
Independence at Risk: Trump’s repeated attempts to gain control over the Fed (legal challenges, attempts to fire governors) are unprecedented and threaten this independence.

3. What Does the Fed Actually Do?

Origin Story: The Federal Reserve was established in 1913 to address frequent bank runs and provide stability to a highly decentralized banking system (10:38–12:47).
Liquidity Explained: “Liquidity is your ability to convert your holdings into cash.” Kathryn provides concrete examples to demystify the concept (12:52–13:52).
Discount Window: The metaphorical (and once literal) window where banks can borrow from the Fed in times of crisis (14:28–14:41).
Relation to the FDIC: The FDIC (Federal Deposit Insurance Corporation) wasn’t established until 1933 and further stabilized the system by insuring deposits, but wasn’t part of the original Fed system (15:18–16:03).

4. Key Moments in Fed History

The Great Depression: The Fed’s early missteps (raising interest rates in a recession) arguably worsened and prolonged the Depression (18:29–19:26).
- Memorable quote: “If it’s swing and a miss, it’s like, miss, miss, miss.” – Kathryn (18:24)
Glass-Steagall Act (1933): Reorganized the Fed and created the Open Market Committee; introduced the FDIC (19:32–21:41).
The Fed-Treasury Accord (1951): Freed the Fed from White House control over interest rates, cementing its independence (22:18–24:04).
1970s & Stagflation: The Fed lost credibility by tolerating inflation to support employment. Paul Volcker (appointed by Carter) forcefully raised rates, causing a painful recession but restoring confidence (25:53–26:39).
- Robin: “And interest rates, like, 20%.”
- Kathryn: “It’s almost like proof through pain that the US economy will be well managed…” (26:42)
The “Dual Mandate”: Stable prices and full employment (Humphrey-Hawkins Act, 1978).

5. Contemporary Fed Crises

The Great Recession (2007–2009): Ben Bernanke, a Depression expert, lowered rates to zero and oversaw “quantitative easing” (buying securities to stimulate the economy). He also increased transparency and accountability via press conferences and policy guidance (29:54–34:25).
- Kathryn’s anecdote about absurdly easy/hard access to credit in 2007 vs. 2009 underscores the tightness of the banking crisis. (31:35–33:37)
Pandemic Recession (2020): The Fed responded quickly, and while the recession was brief, inflation soon became an issue, prompting rate hikes from 2022 onward (36:05–38:20).
Current Challenges (2026):
- Trump’s new contractionary fiscal and immigration policies increase recession risk.
- Political pressure on the Fed to lower rates.
- The pending Supreme Court case on the attempted firing of Biden appointee Lisa Cook, the first Black woman on the Board of Governors, and federal investigations into Powell himself (39:54–45:44).
  - Kathryn: “So everything’s going to come down to this Supreme Court case, which again, doesn’t inspire confidence…” (41:20)

6. The Fed’s Real-World Impact and the Stakes Now

Why Independence Matters: Credibility of the US central bank supports global confidence in the dollar as the world’s reserve currency.
On Public Awareness: The best scenario is not thinking about the Fed. “It’s like liking your dentist. You just need him to be really good at his job.” – Robin (46:28)
Current Situation Recap:
- Senate Banking Committee may delay Warsh’s confirmation until legal proceedings on Powell are resolved.
- What happens in the Fed will dominate news until at least May 2026.

Notable Quotes & Memorable Moments

“If you don’t know what’s going on with the Fed, you’re in amazing company.” – Kathryn [00:53]
“It actually took me, I would say, a solid half decade to figure out what liquidity was… I still don’t get it.” – Kathryn [12:37]
“Is this confusing on purpose?” – Robin [10:25]
On the Fed chair: “It’s like liking your dentist. You just need him to be really good at his job.” – Robin [46:28]
“You just kind of want the Fed to do its thing and do it well… it should go back to just Wall Street and financial companies are obsessed with the Fed and no one else cares…” – Robin [44:02]
“If they do a good job in their independent position, you shouldn’t have to know about them, and we should have trust in institutions.” – Kathryn [47:14]
“Why do I know the name of the Postmaster General?” – Robin, referencing SNL skit [46:31]

Important Timestamps

| Timestamp | Segment | |-----------|-----------------------------------------------------------------| | 05:05 | Introduction to the Fed's current news relevance | | 07:10–08:44 | Explanation of Fed Governor and Chair terms, Powell’s situation | | 10:38–12:47 | History: Why was the Fed founded? | | 18:29 | How the Fed worsened the Great Depression | | 22:18–24:04 | The 1951 Accord, cementing Fed independence | | 25:53–26:39 | Stagflation and Volcker’s painful but successful strategy | | 29:54 | The Great Recession, Bernanke, quantitative easing | | 36:05 | The pandemic and the Fed’s rapid response | | 39:54 | Trump’s policies, Fed, and political tension | | 41:20 | Lisa Cook Supreme Court case, Powell investigation | | 46:28 | “It’s like liking your dentist…”—Should we root for Powell? | | 44:02 | The Fed’s ideal status: invisible to most people | | 47:14 | Why we shouldn’t have to care about the Fed |

Conclusion & Takeaways

The Federal Reserve is a deliberately independent, complex institution at the heart of the US and global economies.
Its power, history, and independence are under unprecedented scrutiny and threat due to current political dynamics.
Moments of great crisis—Depression, stagflation, the Great Recession, and pandemics—have forced the Fed to rethink its role, often painfully.
The best outcome is a competent, independent Fed that fades into the background; when we all know its name, something unusual is happening.
The coming months, as new appointments, lawsuits, and policy tensions play out, will be critical for the institution and the economy at large.

For more:

OptimistEconomy.com
Reach out with questions or economic worries: optimist.economy@gmail.com

End of summary.

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Transcript

A (0:02)

We should include how long this took me to do, like, how many takes. This is. For those of you listening, this is like, take 10.

B (0:07)

I feel so much better.

A (0:15)

Hello and welcome to Optimist Economy. I'm Katherine Ann Edwards, economist.

B (0:18)

And I'm Robin Rousey, editor.

A (0:20)

On this show, we believe the US Economy can be better. And we talk about how to get there one problem and solution at a time.

B (0:31)

Today on Optimist Economy, we're going to talk about the Fed. So this came up because, of course, the Federal Reserve Chairman, Jerome Powell, his term ends in mid May. The President has just nominated Kevin Warsh to replace him. But I've just realized that I don't. The more I read about the Fed, the less I understand it. And so we're going to try to figure some things out so that you understand the stakes and what's going on in the months ahead.

A (0:53)

I would argue that not a lot of people understand the Fed. So if you don't know what's going on with the Fed, you're an amazing company.

B (1:00)

Good, because I have tried really hard in the last few days to figure it out. And like I said, the more I read, the less I know.

A (1:08)

Yeah, well, we'll get there together or not. And you can just stop listening to the podcast. Like, there's lots of ways this could go.

B (1:18)

There's lots, lots of options. This is what we get for trying to be, like, somewhat connected to the news.

A (1:27)

All right, well, do we have any announcements?

B (1:30)

I don't think so.

A (1:31)

Okay, well, after announcements, we do.

B (1:34)

Let's go straight to Retcon.

A (1:36)

Straight to Retcon. Retroactive continuity where we clarify, correct and apologize. So couple retcons. One, Carter liked the show. My co author, who had done all the brilliant math stuff dealing with income inequality calculations, he listened and he said he really enjoyed it. Thank God I didn't tell him I was doing it. I thought I would surprise him because I know he listened to the show and then he said he liked it, and I was very happy. Second, retcon is actually a little harder to deal with, which is that in the prior episode, I said that I went to London and brought home biscuits for Robin, but I actually forgot to give them to her, so I also ate them. And she.

A (7:34)

Okay, we kind of feel like that with the. We have a Federal Reserve System. We will talk about how we get there in a minute. But the Board of Governors is the head of this system that sits in D.C. and then there are regional branches that are distributed geographically throughout the United States and have their own territory that they cover. The Board of Governors is truly a board of seven people, right? Six governors and a chairperson. The governors are appointed to 14 year terms. The chairperson is appointed to a four year term. Term. They're appointed by the President, they're approved by the Senate. And then once they get appointed and approved, there's very little power the President has over them. And as we're learning, it's not clear he has the ability to fire them. They're an independent institution. So the reason why Powell can stay is that Jerome Powell was appointed to the board in 2014 as a governor with a term that would run through 2028. While he was serving that term, he was appointed Chairman of the Federal Reserve by Trump in 2017. If you were on the board and you became chairperson like Powell did, you can return to the board and fill out your term as governor. Nobody's done that for a long time. Most of the time they get done with the chairpersonship and they're like, I'm out. But you can fill out your term. And then in like, it's also really weird. Like if you leave your term early, the person that replaces you fills out your term. It doesn't start a new one. I mean, I, I've told people for a while this is probably how we want the Supreme Court to work. Like they have age limits, they have term limits, meaning they, the Fed, they, the Fed, the Fed Board of Governors. Like, you know, it's a very apolitical board and it's shielded from political influence through their independence and not being able to be fired, which is what Trump is attacking. But the fact that it's every 14 years, it's going to be off with predictable presidential cycles. And then they're staggered. The 14 year terms, they're fairly staggered. Trump has had more appointees than, than usual because his two terms are separated by another term. So that means more people will come up and then someone just quit. So that's the Board of Governors. They meet like twice a month. They go over Fed stuff.

A (39:58)

Well, could have been worse, could have been worse. I mean, the thought was like, there's more than one check on Trump here. One is that the Senate has to approve whoever he picks. And then the second is that if he picked someone that was truly crazy, the financial market would have revolted. And they want someone who's gonna be stable and independent. And so if he had picked someone who wasn't going to do that, you would have seen kind of like upset in financial markets. Now, the question mark is, what will Warsh be like? The guy knows what he's doing, and we have a lot of public records of how he votes on things and what he thinks about things. The question is less so, what has he done? But will he continue to be independent in the future? I don't know. I think that the US Is in an extraordinary position because so much of our economy rests on the Fed being independent. Yet so much of the next appointees success at being appointed will rest on Trump believing that he will do whatever Trump says. Which means our economy is kind of hinging right now on the ability of a handful of men to successfully lie to the President that they will do what he wants and then go out and do what they want because they're Fed chair. And I was like, that just seems like a gamble and it's a failing of the system that somehow this is where we are. The day after he announced him as Fed chair and was like, oh, yeah, he'll be independent. He made it like Trump made a joke that was like, and if he doesn't lower interest rates, I'll sue him. I've already told him that. I'm just kidding. It's like, no, you're not, man. You don't have a filter and you're not clever. Like, you absolutely told him you would sue him for lying if he doesn't lower rates. So everything's going to come down to this Supreme Court case, which again, doesn't inspire confidence about what happens to Lisa Cook, the Federal Reserve Board governor appointed by Biden, first black woman on the Board of Governors who he has tried to fire and alleged that she had mortgage fraud. And our friend Bill Pulte at the FHA said that she had lied on her mortgage application. And she said, no, I didn't, and you can't fire me anyway. Her case is before the Supreme Court, and when it went up for discussion, Powell was right there next to her.