The Precondition

The Federal Reserve has now released the 2020 meeting transcripts. We asked a simple question: When the crisis hit, what did the Fed actually prioritize?

The statutory mandate is clear. The Humphrey-Hawkins Act of 1978 directs the Federal Reserve to pursue "maximum employment" and "stable prices." This is what Powell says at press conferences. It's what economics textbooks teach. It's the dual mandate.

But when March 2020 arrived—when the pandemic shut down the economy and twenty million Americans lost their jobs in a month—what did the Fed treat as a "first-order problem"?

We went into the archives.

Eight queries. Ninety years of documents. 68 sources returned. What follows is the story of what we found.

I. The Sunday Meeting

In this section, we will discover what Federal Reserve officials considered the most urgent threat in March 2020—and it wasn't unemployment.

On March 15, 2020—a Sunday—the Federal Reserve held an emergency meeting. The Committee hadn't met on a Sunday since the depths of the 2008 crisis. The stock market had collapsed 12% in a single day. Twenty million jobs were about to vanish. But inside the Eccles Building, the conversation wasn't about workers.

Loretta Mester, President of the Cleveland Fed, said this:

"The lack of liquidity in the Treasury market is a first-order problem." — Loretta Mester, FOMC20200315meeting.pdf, March 15, 2020

Not unemployment. Not the pandemic. Not the twenty million jobs about to be lost. The "first-order problem" was Treasury market liquidity.

Richard Clarida, the Vice Chair, was more specific about what he was seeing:

"The Treasury security and MBS markets have been in a state of dislocation and distress for the past several weeks due to binding leverage constraints on dealer balance sheets." — Richard Clarida, Vice Chair, March 15, 2020

Randal Quarles, Vice Chair for Supervision, put it in historical context. The bid-ask spreads in Treasury markets—the most basic measure of liquidity—had exceeded 2008 levels. The safest asset in the world was becoming illiquid.

Patrick Harker, President of the Philadelphia Fed, reached for the most severe comparison he could find:

"This is more akin to what we faced on 9/11, although the severity and persistence of the shock could be greater." — Patrick Harker, Philadelphia Fed, March 15, 2020

The Fed moved within hours. By the end of that Sunday, they had cut rates to zero and announced unlimited quantitative easing. Three hundred billion dollars per week in asset purchases. "Whatever it takes."

But here is what the staff had projected for the economy just nine days earlier:

The staff missed GDP by 33 percentage points. They missed unemployment by more than 10 points. The Pro Analysis system scored this as a "catastrophic failure of linear modeling in the face of a non-linear shock."

Even as the crisis intensified, some officials resisted the "recession" label. James Bullard, President of the St. Louis Fed, argued on March 15:

"It's not a recession yet... It's not clear that we're going to get two quarters of negative growth just sitting here today." — James Bullard, St. Louis Fed, March 15, 2020

He characterized the coming collapse as a "one-quarter slowdown" driven by a "health response" rather than a fundamental economic failure. His prescience score: 20%. The economy contracted 31.4% in Q2 alone—the largest quarterly drop in American history.

But on financial markets? The Fed had perfect clarity. While staff forecasts for the real economy were off by an order of magnitude, officials like Clarida and Mester correctly identified the Treasury "dislocation" as a systemic threat requiring "do whatever it takes" intervention.

This is the first pattern: existential alarm on financial plumbing, catastrophic blindness on the real economy.

But this raised a deeper question. Why was the Treasury market seizing? These are supposedly the safest assets in the world. Who was selling?

II. The Sellers

In this section, we will discover who was actually liquidating Treasury securities in March 2020—and what the Fed told the public instead.

In a normal "flight to safety," investors sell risky assets and buy Treasuries. Prices rise. Yields fall. This is what happened in 2008. But in March 2020, something unprecedented occurred: investors sold everything, including Treasuries. For a brief but terrifying period, the safest asset in the world became illiquid.

The standard narrative, then and now, is "pandemic panic." But the transcripts reveal something more specific.

Lorie Logan, the manager of the System Open Market Account at the New York Fed—the person who actually executes Fed policy—gave an internal briefing on what she was seeing:

"Market participants indicated a desire to remove inventory to make room for levered accounts that might need to sell... selling in off-the-run securities." — Lorie Logan, SOMA Manager, NY Fed, March 2020

"Levered accounts." In Fed and market shorthand, that typically refers to hedge funds and other leveraged relative-value traders.

Specifically, hedge funds unwinding the "basis trade"—a leveraged arbitrage strategy that exploits tiny price differences between Treasury securities and Treasury futures. These positions can be leveraged 50-to-1 or more. When volatility spiked, the funds faced margin calls. They had to sell. Fast.

Vice Chair Quarles described what he was observing:

"A 'scissoring' effect—where corporates sought cash while financial firms simultaneously cut exposures." — Randal Quarles, Vice Chair for Supervision, March 2020

The Fed knew in real-time that the selling was coming from forced liquidations by leveraged speculators, not from any loss of confidence in U.S. sovereign credit. Staff tracked "Futures Basis" spreads and repo rates. They identified the specific mechanism: the basis trade collapse.

A prescient warning had come nine months earlier. In June 2019, Ms. Lipscomb of the Fed staff warned that in a liquidity stress scenario, reserve demand would be "chunky" and any supportive facility would need to be available in a "large size" to be effective. She correctly identified that the discount window wouldn't be adequate for the scale of stress she anticipated. Her prescience score: 100%.

The Fed responded by buying $300 billion per week—acting as "dealer of last resort" to absorb the hedge fund selling. The Pro Analysis characterized this as "Good Process, Good Outcome": a high-skill achievement by Logan and the NY Fed staff who correctly diagnosed the basis trade deleveraging and targeted purchases effectively.

But here is what they told the public.

The March 23, 2020 statement said the Fed was acting to "support the flow of credit to households and businesses."

The internal language was precise and technical. The public language was vague and reassuring. Chair Powell said on March 3: "The fundamentals of the U.S. economy remain strong." Twelve days later, the Fed announced unlimited QE.

The Pro Analysis measured this as roughly 70% information dilution—the operational reality of rescuing hedge fund positions filtered down to reassuring language about "households and businesses."

But there's an institutional irony here that the transcripts reveal. The regulations that constrained dealer balance sheets—the Supplementary Leverage Ratio and other post-2008 capital rules—were written by the Fed itself. Staff hinted at this but the official record was "more cautious about blaming post-GFC regulations."

The Fed was rescuing a market that its own regulations had made fragile. But this raised another question: What was the Fed's relationship with the Treasury Department during all of this?

III. The Partnership

In this section, we will discover what Fed officials said about their relationship with Treasury during the CARES Act—and how it contradicts the public narrative of central bank independence.

The CARES Act authorized $454 billion in Treasury funds to backstop Federal Reserve lending facilities. The Fed created programs for corporate credit, municipal bonds, and Main Street lending. In public, this was framed as an independent central bank "honoring its commitment to the American people."

In the transcripts, Jerome Powell described the relationship differently:

"Extending CARES Act facilities—actually, any of the facilities that expire on the 31st, which are the CARES Act facilities—requires the approval of the Secretary... Treasury had sole authority." — Jerome Powell, Chair, FOMC20201105meeting.pdf, November 2020

"Treasury had sole authority." Under Section 13(3), this legal structure formally subordinated emergency lending to Treasury approval. This is the Chair of the Federal Reserve acknowledging that subordination.

Loretta Mester acknowledged what this meant for the Fed's traditional boundaries:

"I believe it's appropriate for us to take on more credit risk than we may have felt comfortable with before this situation." — Loretta Mester, Cleveland Fed, April 2020

The Fed was taking credit risk at Treasury's direction. And officials understood the political implications. Mester added a remarkable observation:

"Steel ourselves not only against criticism, but also against praise." — Loretta Mester, Cleveland Fed, April 2020

Why fear praise? Because popularity creates political dependency. If the Fed becomes popular for pandemic relief, it becomes harder to say no to future Treasury requests. Mester understood that institutional independence was being quietly traded away.

The information transformation followed the now-familiar pattern. On April 17, 2020, staff estimated that "stimulus policies will boost GDP growth 10.1 percentage points (at an annual rate) in the second quarter." This was precise, quantitative analysis. By the time it reached the public, Powell described the CARES Act as "providing a bridge" and "honoring a commitment to the American people."

The transformation: Staff saw a GDP multiplier. The Committee saw a risk to independence. The public saw a "bridge."

The historical record shows this wasn't the first warning. Jeffrey Lacker, former President of the Richmond Fed, had proposed in 2009 that government lending should be transferred to the Treasury under a legislated framework to bound the safety net. His prescience score: 100%. The CARES Act established exactly this model eleven years later—Congress appropriated funds for Treasury to support Fed emergency lending under a specific legislative framework.

Charles Plosser, former President of the Philadelphia Fed, had warned in 2009 that the Fed was "straying into credit allocation that... should be the purview of fiscal authorities." His prescience score: 90%. During COVID, the Fed engaged in unprecedented credit allocation to specific sectors including nonprofits, small businesses, and state and local governments.

William McChesney Martin, the legendary Fed Chair who served from 1951 to 1970, had warned that "pegging government securities at low yields for emergency purposes creates a long-term economic 'price' that must eventually be paid." His prescience score: 90%. The massive expansion of the balance sheet and low-yield environment during COVID eventually led to significant inflation by 2021.

Ms. Mosser, in 2009 internal deliberations about the TALF program, had expressed the institutional anxiety directly:

"One of the reasons for that was, frankly, concern... we really do want to have more control of our destiny." — Ms. Mosser, FOMC Conference Call, 2009

By 2020, the Fed had surrendered that control. James Bullard noted in 2009 that the 1951 Accord was about "how the Fed and the Treasury were actually going to interact"—specifically, how the Fed asserted independence from Treasury's debt-pegging demands. The 2020 CARES Act coordination was essentially a "Reverse Accord": instead of the Fed asserting independence, the Fed and Treasury entered into formal partnership for credit allocation.

Jeffrey Lacker had warned in 2009 about the "time consistency problem": by stepping into credit allocation, the Fed made it nearly impossible to resist future calls for similar interventions. COVID proved him right.

Randal Quarles, Vice Chair for Supervision, voiced the contemporary version of this concern:

"The deficits being run to offset the COVID-related shocks have made it even more critical to address the sustainability of government debt in the years ahead." — Randal Quarles, Vice Chair, May 2021

But what about the other half of the dual mandate—price stability? Did anyone warn about inflation?

IV. The Warnings

In this section, we will discover what Fed officials knew about inflation risk—and why they said "transitory" through most of 2021.

Before the pandemic—in August 2019—the Fed's staff produced an analysis of the new "Average Inflation Targeting" framework that the Committee was about to adopt. Here is what they wrote:

"With impaired transmission of policy through expectations, downside misses of the inflation target persist for longer, resulting in aggressively accommodative policy prescriptions under both the AIT and PLT rules; this in turn leads to a substantial overheating of the economy." — Staff Memo, FOMC20190830memo04.pdf, August 2019

This was before COVID. Staff were warning that the policy framework the Fed was about to adopt would cause overheating. The warning was on the record. Prescience score: 95%.

By December 2020, the Fed's models were generating projections. The Philadelphia Fed's PRISM model projected core inflation for 2021 with an upper bound of 3.9%. The December Tealbook consensus was 1.9%. The actual outcome was approximately 5%.

The NY Fed's model—at 1.3%—was catastrophically wrong. The Philadelphia PRISM model's upper bound was closest to reality. But the Tealbook consensus, which drove policy, was anchored to the lower estimates.

The dissenters spoke up. Esther George, President of the Kansas City Fed:

"Any further accommodation we deliver might be needed for only a short period and present problems thereafter." — Esther George, Kansas City Fed, FOMC20201216meeting.pdf, December 2020

Her prescience score: 80%. Inflation accelerated in Spring 2021, exactly as she warned.

Robert Kaplan, President of the Dallas Fed, had warned in January 2020—before the pandemic even hit:

"I think we will be very well served by a clarification and clear articulation of our philosophy regarding the Federal Reserve's balance sheet growth, in order to tamp down what may be unrealistic expectations in the markets and in the economy about the willingness of the Federal Reserve to grow its balance sheet in the future at a rate greater than that of economic growth." — Robert Kaplan, Dallas Fed, January 2020

His prescience score: 85%. He correctly identified that balance sheet growth exceeding economic growth would create "market distortions."

They were overruled. The consensus—led by John Williams, Mary Daly, and Lael Brainard—held that inflation risks were "tilted to the downside" and that "well-entrenched dynamics will reassert themselves."

The Pro Analysis identified this as "regime blindness"—a policy framework (FAIT) built to fight the last war (deflation) without any "escape hatch" for a supply-shock-driven inflation surge. The Committee relied on the 2008-2009 parallel, assuming that because QE1 and QE2 didn't cause inflation, QE4 (2020) wouldn't either. They ignored that 2020 involved a massive increase in M2—direct deposits to households—whereas 2008 involved an increase in bank reserves that remained largely stagnant.

The pattern: regional presidents without votes got it right. Board leadership with votes got it wrong. No accountability for the systematic error.

The Pro Analysis concluded: "The documents definitively establish that the Federal Reserve was not 'blind-sided' by inflation in 2021. Rather, the institution possessed internal models (PRISM/EDO) and vocal minority participants (George/Kaplan) who explicitly warned of overheating."

But this raised the deepest question of all. If the Fed ignored inflation warnings, dismissed employment forecasting errors, and prioritized Treasury market liquidity above everything else—what is the actual mandate?

V. The Quiet Part

In this section, we will discover what Fed officials said about the real hierarchy of priorities—in the clearest language we found in ninety years of documents.

Thomas Baxter was the General Counsel of the Federal Reserve Bank of New York—the person responsible for the legal framework of Fed interventions. In 2009, he said this:

"Price stability and maximum employment are possible only in a context of financial stability... until financial stability could be restored, the ability to achieve the goals of maximum employment and price stability through the monetary transmission mechanism were beyond the Federal Reserve's reach." — Thomas C. Baxter, General Counsel, NY Fed, December 2009

Read that again. The dual mandate—employment and price stability—is "beyond the Federal Reserve's reach" until financial stability is secured. This is the institutional admission that inverts the public narrative. The dual mandate isn't the mission. Financial stability is the prerequisite.

This wasn't a slip. The same logic appeared across decades of transcripts.

Thomas Hoenig, during the 2008 crisis, framed the political reality:

"The financial markets, the general public and political authorities will look first and foremost to the Federal Reserve to respond to any significant threats to financial stability." — Thomas Hoenig, Kansas City Fed, September 2008

"First and foremost." Before employment. Before inflation. Before the statutory mandate.

Kevin Warsh, then a Governor, had provided the framing a year earlier:

"Indeed, well-functioning financial markets are a precondition for a sustainable, prosperous economy." — Kevin Warsh, Governor, September 2007

"Precondition." The word kept appearing.

Lael Brainard, then a Governor and now Biden's NEC Director, formalized the argument in 2014:

"The existing framework does not adequately address financial stability, which I consider to be an implicit third leg of our responsibilities." — Lael Brainard, Governor, October 2014

She then proposed something that never made it into public communications:

"We should specify the circumstances under which we might be willing to tolerate some deviation from either leg of the dual mandate" to preserve financial stability. — Lael Brainard, Governor, October 2014

"Tolerate deviation from the dual mandate." This is explicit acknowledgment that the statutory mandate is subordinate to financial stability.

A 2019 staff memo went even further:

"Less accommodative policy... has the added benefit of reducing the probability of a future crisis even if it leads to a rise in current unemployment and to a softer inflation outlook." — Staff Memo, July 2019

Staff explicitly acknowledged they would sacrifice employment to preserve stability. That's the revealed hierarchy.

The Pro Analysis traced the evolution of this thinking through four phases:

The logic became self-reinforcing. If financial stability is the prerequisite for the dual mandate, then anything that threatens markets threatens the Fed's ability to do its job. This created a framework where market rescue is always justified—because without it, "the ability to achieve the goals of maximum employment and price stability" is "beyond the Federal Reserve's reach."

But if financial stability is the real priority, how does the Fed actually transmit policy to the economy? The answer reveals who benefits.

VI. The Wealth Effect

In this section, we will discover how the Fed knew its primary policy tool was regressive—and used it anyway.

By August 2010, the Fed knew the textbook transmission mechanism wasn't working. Director Bill English admitted in internal deliberations that the bank lending channel "doesn't seem to be there." Banks weren't lending more because the Fed was buying bonds. So the Fed pivoted to a different channel.

On November 3, 2010, Ben Bernanke explained how quantitative easing was actually supposed to work:

"The way this is supposed to work is by affecting asset prices—changing relative rates of return—and through the changes in asset prices affecting financial conditions and, therefore, affecting the economy." — Ben Bernanke, Chairman, November 2010

Not through bank lending. Not through credit expansion to businesses. Through asset prices.

Thomas Hoenig's response was devastating in its simplicity:

"The Committee takes this action expecting it will incent portfolio adjustments, thus changing relative prices and somehow spurring aggregate demand. This will stimulate gross domestic product and reduce unemployment, as we pursue maximum employment." — Thomas Hoenig, Kansas City Fed, November 2010

That word—"somehow"—contains the entire gap between Fed theory and Fed reality.

Richard Fisher, President of the Dallas Fed, was more direct about who would benefit:

"We can be certain that it will lead to a declining dollar that will encourage further speculation, that it will promote commodity hoarding, that it will accelerate the transfer of wealth from the deliberate saver and the unfortunate to the more well-off, and that it will place at risk the independence of this great institution." — Richard Fisher, Dallas Fed, November 2010

Fisher named it explicitly: a wealth transfer from savers to the already wealthy. This wasn't a side effect. It was the mechanism.

The Fed knew who owned the assets. Janet Yellen, as Vice Chair, had stated publicly in 2014 that the top 5% of households hold 65% of financial assets. The next 45% hold 33%. The bottom 50% hold 2%.

Staff analysis in 2012 quantified the transmission: the marginal propensity to consume from illiquid financial assets was only $2.0 per $100 increase. The wealthy have low marginal propensity to consume. You can inflate their portfolios by trillions and they'll save most of it.

By September 2012, David Reifschneider, Senior Associate Director of the Division of Research and Statistics, made a remarkable admission about what the Fed's models actually showed:

"So you can think of it as three channels: cost of capital, wealth effects, and exchange rate. The model says each of those is worth roughly a third of the overall effect. ... But in terms of what it implies for bank lending, or something like that, no, the model doesn't—" — David Reifschneider, Board Staff, September 2012

The Fed's primary forecasting model for QE's efficacy did not even incorporate a bank-lending component. The textbook transmission mechanism—Fed buys bonds, banks lend more—wasn't in the model. Because it wasn't how QE worked.

A September 2013 private staff memo quantified the actual channel:

"Household net worth contributes ½ percentage point to the acceleration in consumption from 2012 to 2015, as prices of corporate equity and housing have increased about 18 percent and 12 percent, respectively, over the past year." — Staff Memo, September 2013

The staff knew. They had the numbers. The recovery was being "bought" through asset price appreciation. Corporate equity up 18%. Housing up 12%. Who owns corporate equity? The top 10% of households own roughly 90% of stocks.

The "somehow" was doing a lot of work.

Charles Evans, President of the Chicago Fed, made it explicit in 2017:

"Or all those households that don't have wealth. That's my whole point about 50 percent and 1 percent." — Charles Evans, Chicago Fed, May 2017

And then he added something remarkable about how the Committee discussed this internally:

"I wrote down '50 percent, 1 percent, 0.1 percent, and .001 percent.' This is more about income distribution and who has the wealth. I think that this is not about macroeconomics but perceptions of the public, and 'wealth' has a loaded connotation at the moment." — Charles Evans, Chicago Fed, May 2017

The Committee debated removing the word "wealth" from their statements because of "perceptions." The substance was known. The communication was managed.

The Pro Analysis concluded: "The institutional record establishes that the Federal Reserve did not stumble into a policy that favored the wealthy; it consciously utilized a transmission channel it knew to be regressive."

The forecast record on the wealth effect was poor. Staff projected in 2013 that wealth gains would "more than offset" tax increases—it didn't materialize. The 2010 staff projected PCE would rise 7.5% over 2011-2012 from wealth effects; the actual increase was 4% (3.5 percentage point error).

The models treated "household wealth" as a monolith—even as staff data showed it was anything but. When the primary tool of a central bank only reaches the top decile of the population, the "aggregate" success masks a "distributional" failure.

But if the wealth effect is the mechanism, and exit from accommodation threatens financial stability, can the Fed ever actually normalize?

VII. The Exit That Never Happened

In this section, we will discover how the Fed planned—and repeatedly failed—to normalize policy, revealing why the "precondition" logic creates a trap.

The Fed began formal exit strategy deliberations in June 2009—fifteen years before they would finally be relevant. Thomas Hoenig, President of the Kansas City Fed, framed the challenge:

"The exit strategy has two dimensions: the traditional monetary one of how you get the fed funds rate up, and the second around large-scale asset purchases." — Thomas Hoenig, Kansas City Fed, June 2009

In 2011, the Committee established "Policy Normalization Principles": cease reinvestments before raising rates. By 2014, they had inverted the sequence: raise rates before reducing the balance sheet. By 2017, they were running off the balance sheet on "autopilot" targeting a $1.5 trillion floor.

By September 2019, the autopilot crashed. The repo market spiked. The Fed halted runoff at $3.8 trillion—more than double the projected floor.

By March 2020, COVID erased all progress. The balance sheet went from $4 trillion to $9 trillion.

Hoenig had warned in December 2010:

"The process of exiting from accommodative policy would be a major challenge, far more so than we're willing to acknowledge today." — Thomas Hoenig, Kansas City Fed, December 2010

His prescience score: 90%. The Committee was still debating and revising "normalization principles" as late as September 2015—five years after he issued the warning.

Sarah Bloom Raskin, then a Governor, argued in 2013 that the 2011 exit sequencing was already obsolete:

"The 2011 exit tactics 'do not make perfect sense' given the evolving consequences of Fed policy." — Sarah Bloom Raskin, Governor, April 2013

Her prescience score: 100%. By 2015, the Committee was indeed adding new "bullet points" and making changes to the normalization principles, confirming her view that the original tactics were insufficient.

The internal deliberations reveal something else: deliberate ambiguity. Governor Daniel Tarullo cautioned against being "too crisp or clear about the when" of normalization. This "constructive ambiguity" was a strategy—keep markets guessing to preserve optionality.

But the 2019 repo crisis validated the skeptics. The Fed didn't understand structural reserve demand in the post-Dodd-Frank environment. The regulations they championed had created permanent demand for large balance sheets—making exit structurally impossible.

The Pro Analysis drew a stark lesson: "When leverage in the system (via the basis trade) exceeds the balance sheet capacity of the primary dealers, even the world's most liquid asset can become illiquid. Future stability requires not just monitoring banks, but a deep, real-time understanding of the 'levered accounts' that now dominate Treasury price discovery."

The exit was planned. Revised. Inverted. Abandoned. And then erased by the next crisis. The "precondition" logic had created a one-way ratchet.

VIII. The Self-Fulfilling Prophecy

In this section, we will discover how the Fed's own logic traps it in a cycle of intervention.

The Pro Analysis identified a structural dynamic embedded in the Fed's operating framework:

"The Fed's 'precondition' logic creates a self-fulfilling prophecy: by prioritizing market stability to save employment, the Fed reinforces the very market dependencies that make the economy so fragile in the first place." — Pro Analysis Conclusion

The more the Fed rescues markets, the more markets expect rescue. The more markets expect rescue, the more leverage builds. The more leverage builds, the more fragile the system becomes. The more fragile the system becomes, the more the Fed must rescue.

Bernanke himself identified this risk in 2013—the "Fed Put," the market's expectation of intervention. But the dynamic was never resolved. It was institutionalized.

Eric Rosengren, President of the Boston Fed, had warned during the 2008 crisis:

"There are a lot of lessons learned, but we shouldn't be in a position where we're betting the economy on one or two institutions." — Eric Rosengren, Boston Fed, September 2008

His prescience score: 90%. His skepticism of "too big to fail" was validated by the subsequent depth of the recession—and repeated in 2020 with the basis trade.

Jeffrey Lacker, President of the Richmond Fed, had identified the ideological shift in March 2008:

"More broadly, our efforts to ameliorate credit market conditions appear to be motivated by the notion that exogenous malfunctions internal to credit markets endanger the real economy." — Jeffrey Lacker, Richmond Fed, March 2008

His prescience score: 90%. He highlighted the shift toward market-primacy before it was fully institutionalized.

The Pro Analysis framed the ultimate lesson:

"The ultimate lesson for future episodes is that the Fed's 'precondition' logic creates a self-fulfilling prophecy: by prioritizing market stability to save employment, the Fed reinforces the very market dependencies that make the economy so fragile in the first place. As Governor Brainard suggested, the institution must eventually 'specify the circumstances' under which it will stop prioritizing the market over the mandate." — Pro Analysis Conclusion

That specification has never come.

IX. The Pattern

The transcripts reveal a consistent information transformation at each layer of Fed communication:

Staff layer: Technical precision. "Levered accounts." "Substantial overheating." "Treasury has sole authority." "MPC of $2.0 per $100 for wealthy households."

Committee layer: Institutional acknowledgment. "First-order problem." "Steel ourselves." "Problems thereafter." "Somehow."

Public layer: Moral narrative. "Households and businesses." "Transitory." "Honoring our commitment." "Strong fundamentals."

The Pro Analysis measured consistent dilution rates across the eight queries. (Dilution scores compare internal mechanism specificity, attribution clarity, and stated trade-offs against contemporaneous public statements using a fixed rubric.)

• 70% dilution of the hedge fund basis trade role in Treasury dysfunction
• 90% omission of the trade-off between stability and employment
• 50% softening of the "third leg" proposal to formalize financial stability
• 80% reframing of internal dissent about QE's diminishing returns

The language changes at each step. The mechanism is stable. The distributional incidence is asymmetric.

X. The Hierarchy

Based on eight queries across ninety years of documents, here is what the Fed actually prioritizes—measured by response time and institutional urgency:

The statutory dual mandate—employment and price stability—sits at positions five and six. The top four priorities are all financial plumbing and asset prices.

When the Treasury market seized, the Fed moved in hours. When twenty million jobs were lost, the Fed took quarters to respond. When inflation hit 9%, they called it "transitory" through most of 2021.

The Question

The Fed's statutory mandate is employment and price stability. Its revealed mandate—documented across ninety years of transcripts, staff memos, and internal deliberations—is financial stability first, government financing second, asset prices third, and the dual mandate when the preconditions are secured.

Baxter called financial stability the prerequisite without which the dual mandate is "beyond the Federal Reserve's reach." Brainard proposed "tolerating deviations" from the dual mandate to preserve it. Staff acknowledged they would sacrifice employment to prevent crises. And the wealth effect—the primary transmission channel—reaches half the population through a mechanism the Fed knew delivered $2 per $100 to consumption.

The documents don't prove intent. They don't prove conspiracy. But they prove pattern. They prove that when the plumbing is threatened, the Fed moves in hours. When jobs are lost, they take quarters. When inflation builds, they say "transitory."

The transcripts don't abolish the dual mandate; they reveal the sequencing. In crises, the Fed treats market functioning as the precondition—because without it, the transmission mechanism that connects policy to employment and inflation is impaired or broken.

The dual mandate describes goals. The transcripts reveal sequencing.

The question the documents raise but don't answer: What is the real mandate actually serving?

We have the documents.

The FOMC Insight Engine provides semantic search across 90 years of Federal Reserve documents. Every claim in this article can be verified. For research inquiries, contact konstantine.milevsky@gmail.com.