As the Federal Reserve considers a rate hike after bank failures, Frontline correspondent James Jacoby explains how the Fed’s “culture of secrecy” threatens Hollywood and big tech

The US Federal Reserve is expected to raise interest rates again on Wednesday, continuing its long-running effort to curb inflation. But that balance is more elusive than ever given the collapses of Silicon Valley Bank and Signature Bank and subsequent collapses related to the new interest rate environment.

James Jacoby, a correspondent with front linespent years covering the Feds’ secretive ways for an episode of the PBS series, Easy money era. The documentary which premiered last week and is free to stream front line The YouTube channel describes the long series of decisions from the 2000s to the present that kept interest rates artificially low. The challenge now: trying to get companies at all levels to overlook one of the fundamental elements that helped them grow.

“Silicon Valley is going through a correction right now, mostly because easy money is over,” Jacoby said in an interview with Deadline. The rate hike “is going to have a big impact on Silicon Valley, it’s going to have a big impact on the entertainment industry.”

An advanced economics degree is not required to understand the fundamental whiplash that has hit SVB, Credit Suisse and other institutions in recent days. They invested in various places on the assumption that low interest rates would continue. After the Fed decided to raise rates up to eight times in 2022, it was unable to adjust in time to limit its vulnerability.

Sheila Bair, former chairman of the FDIC, blames the Fed for causing bank failures, the worst since the 2008 financial crisis. Turn it around quickly and we won’t have these problems,” she says in the film. “I have long advocated for the Fed to raise interest rates. Even I think they should press ‘pause’ now. You went too far, too fast. You have to understand the implications for the financial system and the economy.”

Jacoby, who has done previous Frontline episodes on Amazon and Facebook and was there before 60 minutescalling the Fed “the most isolated and private institution I’ve ever covered.”

Some of this “culture of secrecy” is at least partially intentional. When the Federal Reserve Board was established in 1913, it was to become an independent monetary policy body focused on preventing the kind of panics that rocked the American economy in the early 20th century. To maintain her focus, she must be free from partisan politics. A century later, however, the Fed was heavily criticized for being out of touch, despite its stated mission to help ordinary Americans.

“There’s a lot of myopia out there,” Jacoby said. “History has taught her to think more about the unintended consequences of her policies.”

Even the terminology used by the Fed to communicate its moves has a stiff, inaccessible slang. For example, “quantitative easing” or “quantitative tightening” indicates the direction in which interest rates are moving again. “There is an absolute analogy with the Vatican. Everything is there except the white smoke,” Jacoby said. “You might as well speak Latin.”

What will be the effect on Hollywood and Big Tech once the smoke clears? Jacoby said the landscape is likely to change dramatically if interest rates remain high. First, he said: “The M&A craze is over.” While money poured into venture capital and private equity, those funds looked up into areas like streaming and technology, funding deals with low-interest debt. After interest rates rose sharply, not only did these incentives shift, but unrealized losses could be hidden on corporate books. While the federal takeover of SVB and UBS’s takeover of Credit Suisse helped protect savers, Jacoby believes the contagion has not gone away.

“There is cause for concern,” he said. “The strangers here are worried. This is a huge setback and will have huge ripple effects.”