Illustration: Sarah Grillo/Axios

Chair Jerome Powell and the Federal Reserve reacted with unprecedented speed to the coronavirus pandemic, but the central bank's actions could unleash a Pandora's box of unintended consequences.

Why it matters: The Fed is an unelected institution whose head is chosen by the president and its new programs have paved the way for its powers to be significantly amplified and politicized.

  • "America has never seen anything like it," Peter Conti-Brown, a nonresident fellow at Brookings Institution, notes.

What it means: The loans made through its so-called special purpose vehicles give the Fed a strategic interest in keeping those companies afloat.

  • This mean going forward it could either be charged with picking winners and losers — bailing out some companies while watching others fail — or adding a bonanza of new lending programs to provide financing to just about every corner of the economy.

What's happening: The Fed is prohibited from buying debt not backed by the government and from making loans that lose money, but it has emergency lending authority for “unusual and exigent circumstances,” an undefined term.

  • The special purpose vehicles it has set up through the $2 trillion CARES Act and its facilities to buy corporate bonds, municipal bonds and "fallen angels" (bonds from companies recently downgraded from investment- to speculative-grade) could all very realistically see losses.

Flashback: The Fed announced in 2018 that it would reduce the purchases of U.S. government debt and mortgage-backed securities it had been accumulating since 2009 to stem the global financial crisis.

The intrigue: The Fed has set itself up to repeat this process, but now the buying would include corporate and municipal bonds as well as direct lending to companies.

  • "They went down a slippery slope," Vincent Reinhart, chief economist at Mellon who previously spent 20 years at the Fed, tells Axios.
  • "I am worried about where Fed will be a year from now."

Why you'll hear about this again: Having now opened its lending facility to private companies and accepted the possibility of losses, it's difficult to make the case that the Fed cannot "bail out" ordinary Americans.

  • "A People’s Fed could plausibly give every worker a monthly zero-interest loan, and then forgive them all," Trevor Jackson, assistant professor of economic history at George Washington University, points out.
  • "Even setting aside wage replacement, a People’s Fed could be buying and retiring student loans and medical debt."

Go deeper: The gamble to re-open the economy

Go deeper

South Carolina caterer: Loans kept many businesses afloat during COVID pandemic

Axios' Sara Fischer (L) and Sameka Jenkins, owner Carolima’s Lowcountry Cuisine. Photo: Axios screenshot.

Many small businesses would have gone under without financial aid during widespread closures caused by the coronavirus pandemic, Carolima’s Lowcountry Cuisine owner Sameka Jenkins said at an Axios virtual event Tuesday.

Zoom in: Jenkins said her South Carolina-based company received an Economic Injury Disaster Loan from the Small Business Administration to ease the financial effects of the crisis.

Updated Oct 7, 2020 - Health

World coronavirus updates

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Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Axios Visuals

New Zealand now has active no coronavirus cases in the community after the final six people linked to the Auckland cluster recovered, the country's Health Ministry confirmed in an email Wednesday.

The big picture: The country's second outbreak won't officially be declared closed until there have been "no new cases for two incubation periods," the ministry said. Auckland will join the rest of NZ in enjoying no domestic restrictions from late Wednesday, Prime Minister Jacinda Ardern said, declaring that NZ had "beat the virus again."

Caitlin Owens, author of Vitals
Jul 29, 2020 - Health

Reopening schools is a lose-lose dilemma for many families of color

Reproduced from KFF Health Tracking Poll; Note: Share includes responses for "very/somewhat worried", income is household income; Chart: Axios Visuals

Children of color have the most to lose if schools remain physically closed in the fall. Their families also have the most to lose if schools reopen.

Why it matters: The child care crisis created by the coronavirus pandemic is horrible for parents regardless of their race or income, but Black and Latino communities are bearing the heaviest burden.