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.