In an interview with current affairs program 60 Minutes, Jerome Powell, Chair of the Federal Reserve, says cyberattacks are the biggest threat to the economy. The chief executive of the US central bank is concerned about the consequences if financial institutions are attacked by hackers. If that happens, the impact may be greater than the Great Recession of 2008.
Two Major Threats to The US Economy
During the 60 Minutes interview Powell spoke extensively about the state of the US economy. According to the Federal Chair, the greatest danger has passed thanks to the coronavirus vaccination program, financial assistance for citizens, and a strong monetary policy. These measures have allowed people to get back to work, which is the best means of getting the economy back on its feet. Powell expects 6 to 7 percent growth and a significant drop in unemployment in the coming year. However, a surge in coronavirus cases might still undermine the frail economic recovery.
Nonetheless, Powell is optimistic about the US economy’s recovery in the short term. Of course, Covid-19 can still throw a spanner in the works. Moreover, there’s another major threat to economic recovery: cyberattacks. Powell thinks that if we have an economic recession similar to the Great Recession of 2008 in the upcoming years, we would most likely be unable to attribute it to an economic crisis.
“We Need to Keep A Close Eye on Cyber Risks”
The systemic breakdown in 2008 was caused by banks providing irresponsible loans and making loss-generating investments. As a result, their liquidity decreased and their capital position weakened. So much so that the government had to come to their rescue. 100% of the largest banks were bailed out. At that point, 12 out of 13 banks were at the risk of failure within two weeks. The total cost amounted to billions of dollars. Luckily, the chances of this happening again are, according to Powell, “Very, very low. Very low.”
“But the world changes. The world evolves. And the risks change as well”, said Powell. “And I would say that the risk that we keep our eyes on the most now is cyber risk. That’s something that many, many government agencies, including the Fed and all large private businesses and all large private financial companies in particular, monitor very carefully, invest heavily in. And that’s really where the risk I would say is now, rather than something that looked like the global financial crisis.”
Banks Invest the Most in Cybersecurity
60 Minutes reporter Scott Pelley asked Powell what cyber risks he was envisaging. To which Powel answered “All different kinds”. Next, he sketched different scenarios. One of the examples he used was a large payment utility breaking down, causing the payment system to stop working. Or a large financial institution losing the ability to track payments. Events which would indeed bring the financial system to a standstill.
Powell emphasized that major institutions face cyberattacks almost daily. “That’s a big part of the threat picture in today’s world. And so, we spend so much time and energy and money guarding against these things. The government is working hard on that. So are all the private sector companies.”
“Biden is going to hit back hard”
The fear of cyberattacks and the possible impact on the whole of society has not escaped President Joe Biden. Even before taking office as president, Biden was fiercely critical of his predecessor, Donald Trump. If the previous administration had taken cybersecurity more seriously, maybe many would have been better prepared for cyberattacks by state-sponsored hackers.
For example, early in December, unknown perpetrators stole scripts and tools from cybersecurity company FireEye. With this, the attackers managed to penetrate Solar Winds’ company network and carry out a supply chain attack. The event affected more than 250 US government agencies and other organizations. Security experts suspect that Russia is responsible for these attacks. In a speech, Biden later pledged to give Russian networks a taste of their own medicine.
In early March, The New York Times reported that the Biden administration was preparing a series of “clandestine” cyberattacks against Russia. A recently formed task force will also investigate China’s involvement in Microsoft Exchange Server’s zero-day exploits. Chinese state hackers are suspected of exploiting several zero-day exploits to gain access to email accounts of tens of thousands of organizations. This has enabled them to steal confidential information and install ransomware and other malware. The scale of subsequent attacks leveraging these attacks is massive.