Zaid

The Federal Reserve likes to operate in the background, but during the biggest moments in American history, like wars, depressions, and pandemics, the Fed becomes the main character, and their track record is mixed.

Let's first start with the biggest L in the Fed's history, the Great Depression.

See, back in the 1920s, when the Fed was first formed, they seemed to have things figured out.

They were adjusting interest rates, buying and selling government securities, and the economy was humming along.

You might remember hearing about the roaring 20s from history class.

Well, that all came crashing down in 1929.

The stock market crashed and so did the economy.

GDP fell by 30%, unemployment hit 25%, and the economy entered the Great Depression.

Many economists and historians today blame the Fed for not stepping up and being more aggressive.

Instead of flooding the system with cash to keep banks alive, they let banks fail by the thousands, which destroyed confidence in the entire financial system.

And it's that lack of action by the Fed that probably made the Great Depression worse than it had to be.

I actually talked to financial journalist Andrew Ross Sorkin about the Fed's role in 1929 in my recent interview with him.

Andrew wrote a very detailed and great book about the crash in 1929.

The first part of the book is about the failure of the Fed.

So go check out that interview if you missed it.

It was a great conversation.

Now, this massive failure by the bank led to Congress passing new laws regarding the Fed, including shifting powers away from the regional reserve banks and centralizing it in Washington with a board of governors.

Now, the Fed did learn from their mistake, and their next big test came during World War II.

During the 1940s, the Fed kept interest rates artificially low to help the U.S.

government finance the war efforts to build tanks and planes.