Friday, September 5, 2025
The Fed’s ‘Gain of Function’ Monetary Policy
As we saw during the Covid pandemic, lab-created experiments can wreak havoc when they escape their confines. Once released, they can’t easily be put back. The “extraordinary” monetary-policy tools unleashed after the 2008 financial crisis have similarly transformed the Federal Reserve’s policy regime, with unpredictable consequences.
The Fed’s new operating model is effectively a gain-of-function monetary policy experiment. Overuse of nonstandard policies, mission creep and institutional bloat threaten the central bank’s independence. The Fed must change course. Its standard tool kit has become too complex to manage, with uncertain theoretical underpinnings. Simple and measurable tools, aimed at a narrow mandate, are the clearest way to deliver better outcomes and safeguard central-bank independence over time.
One might think that new tools created after 2008 and the centralization of the financial market would have given the Fed greater insight about the economy’s direction. At a minimum, all those gained functions should have allowed the Fed to steer the economy more effectively. That didn’t happen. In 2009, the Fed forecast that real gross domestic product would accelerate to 4% in 2011. Instead, growth slowed to 1.6%. Cumulatively over that period, the Fed’s two-year projections overstated real GDP by more than $1 trillion. Repeated misses demonstrate that the Fed placed too much faith in its own abilities and in expansionary fiscal policy to spur growth. When the Trump administration shifted toward tax cuts and deregulation, the Fed’s forecasts were too pessimistic, underscoring its reliance on flawed models and neglect of supply-side effects.
Successive interventions during and after the financial crisis of 2008 created what amounted to a de facto backstop for asset owners. This harmful cycle concentrated national wealth among those who already owned assets. Within the corporate sector, large firms thrived by locking in cheap debt, while smaller firms reliant on floating-rate loans were squeezed as rates rose. Homeowners saw their property values soar, largely insulated by fixed-rate mortgages. Meanwhile, younger and less affluent households, shut out of ownership and hit hardest by inflation, missed out on appreciation.
By failing to deliver on its inflation mandate, the Fed allowed class and generational disparities to widen. Its pursuit of a wealth effect to stimulate growth backfired. “Unprecedented inequality is clear proof that the wealth effect is all too effective for the wealthy, but an accelerant to economic hardship for everyone else,” financial analyst Karen Petrou wrote in her book “Engine of Inequality” (2021).
The Fed’s growing footprint has profound implications for independence. By extending its remit into areas traditionally reserved for fiscal authorities, the Fed has blurred the lines between monetary and fiscal policy. The central bank’s balance-sheet policies directly influence which sectors receive capital, intervening in what should be the domain of markets and elected officials. Entanglement with Treasury debt management creates the perception that monetary policy is being used to accommodate fiscal needs. Expanded powers have fostered a culture in Washington that relies on the Fed to bail out the government after poor fiscal choices. Instead of accountability, presidents and Congress have expected intervention when their policies falter. This “only game in town” dynamic has created perverse incentives for irresponsibility.
Regulatory overreach compounds the problem. The Dodd-Frank Act dramatically enlarged the Fed’s supervisory footprint, transforming it into the dominant regulator of U.S. finance. Fifteen years on, the results are disappointing. The 2023 failure of Silicon Valley Bank illustrates the dangers of combining supervision and monetary policy. The Fed now regulates, lends to and sets the profitability calculus for the banks it oversees, an unavoidable conflict that blurs accountability and jeopardizes independence. A more coherent framework would restore specialization: empowering the Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency to lead bank supervision, while leaving the Fed to macro surveillance, lender-of-last-resort liquidity and monetary policy.
At the heart of independence lies credibility and political legitimacy. Both have been jeopardized by the Fed’s expansion beyond its mandate. Heavy intervention has produced severe distributional outcomes, undermined credibility and threatened independence. Looking ahead, the Fed must scale back the distortions it causes in the economy. Unconventional policies such as quantitative easing should be used only in true emergencies, in coordination with the rest of the federal government. There must also be an honest, independent, nonpartisan review of the entire institution, including monetary policy, regulation, communications, staffing and research.
The U.S. faces short- and medium-term economic challenges, along with the long-term consequences of a central bank that has placed its own independence in jeopardy. The Fed’s independence comes from public trust. The central bank must recommit to maintaining the confidence of the American people. To safeguard its future and the stability of the U.S. economy, the Fed must re-establish its credibility as an independent institution focused solely on its statutory mandate of maximum employment, stable prices and moderate long-term interest rates.
Scott Bessent is U.S. Treasury secretary. A longer version of this article appears in the forthcoming issue of the International Economy magazine.
https://www.wsj.com/opinion/the-feds-gain-of-function-monetary-policy-ac0dc38a
Buffett’s Oregon Utility Says Fire Lawsuits Pose Shutdown Risk
Berkshire Hathaway Inc.’s PacifiCorp says ongoing litigation from massive wildfires in 2020 that exposed the company to billions of dollars in damages is jeopardizing its ability to continue providing power to hundreds of thousands of customers in Oregon.
In an emergency court filing Friday, the company said a Portland judge has set up an “impossible schedule” of 160 jury trials “week after week” over 2 1/2 years. The trials are for small groups of individual homeowners to seek millions of dollars in monetary damages for homes and businesses destroyed by blazes four years ago, PacifiCorp said.
Nasal Spray May Reduce Risk Of COVID-19 Infection: Study
by Zachary Stieber via The Epoch Times (emphasis ours),
A nasal spray typically used to relieve allergy symptoms may help combat COVID-19, according to a new study.
People who received the azelastine nasal spray in a randomized, placebo-controlled trial in Germany were less likely to test positive for COVID-19, researchers reported on Sept. 2.
Only 5 participants administered the spray had laboratory-confirmed COVID-19, compared to 15 in the placebo group, they said.
Spray recipients also had a lower incidence of rhinovirus infections.
The single-center trial involved 450 people receiving the spray or a placebo three times a day for 56 days. The trial lasted from March 2023 to July 2024.
“Azelastine nasal spray could provide an additional easily accessible prophylactic to complement existing protective measures, especially for vulnerable groups, during periods of high infection rates, or before travelling,” Dr. Robert Bals, professor of internal medicine at Saarland University, who led the trial, said in a statement.
In a commentary article, also published by JAMA Internal Medicine, U.S. researchers Dr. Samuel Vidal and Dr. Dan Barouch said that the German scientists reported “promising data.”
Since the trial was carried out at one center and had a relatively modest size, further studies are needed to assess whether the spray is actually effective against COVID-19, Bals and his co-authors said.
“These findings support the potential of azelastine as a safe prophylactic approach warranting confirmation in larger, multicentric trials,” they wrote.
The trial was funded by URSAPHARM Arzneimittel GmbH, which manufactures the spray, and some of the authors are employees of the company.
In the United States, azelastine was approved in 2012 to reduce symptoms of seasonal allergies. It is sold as Dymista and is also available generically. Side effects include drowsiness and headache.
Earlier Findings
Some earlier papers have also indicated that the spray works against seasonal viruses.
In a trial carried out in India that involved some of the same German researchers, neither arm had COVID-19-related hospitalizations, but recipients of azelastine had lower viral loads and improved symptoms, the researchers said in a 2024 paper.
People who tested positive for COVID-19 and received the antihistamine had lower viral loads than placebo recipients, researchers, including some of the authors of the new paper, said in a 2023 paper. The trial was conducted in Germany.
Both of those trials were funded by URSAPHARM.
Scientists said in 2022 that a study indicated that azelastine reduced the effects of COVID-19 in vitro, or in a laboratory setting. The study received funding from CEBINA GmbH, a partner of URSAPHARM.
https://www.zerohedge.com/medical/nasal-spray-may-reduce-risk-covid-19-infection-study
Change Healthcare hack delays Oracle Health VA EHR testing
The Change Healthcare cyberattack delayed testing for a new Oracle Health EHR at an Illinois hospital jointly operated by the U.S. Department of Veterans Affairs and Department of Defense, the VA’s Office of Inspector General found.
The Captain James A. Lovell Federal Health Care Center in North Chicago went live in March 2024 with the new EHR, which a VA official at the time called a “critical test” for the larger Oracle Health rollout across the agency.
The VA and the EHR vendor delayed testing on a billing and payment interface due to the February 2024 ransomware attack on the UnitedHealth Group claims processing subsidiary until the EHR was live, according to the Sept. 3 OIG report.
“VA and Oracle Health could not conduct a localized test on the interface until it was released because Change Healthcare’s system, on which this interface relied, shut down due to a cyberattack in February 2024,” the report noted. “Senior [EHR Modernization] Integration Office leaders said that, because of security concerns, this capability was replaced by a new system not operational until November 2024.”
OIG noted “inadequate documentation in some cases, which warrants VA’s further attention” and left it up to the VA to “determine whether additional actions should be taken.”