Jerome Powell is stepping down as chair of the Federal Reserve on Friday, leaving behind a record defined by two vastly different crises and his refusal to bend to presidential pressure on monetary policy.
His path to the top of America's central bank was unconventional. A lawyer and Wall Street dealmaker with no formal economics training, Powell was semi-retired when President Obama appointed him as a Fed governor in 2011. Few saw him as a future chair. When Trump nominated him in 2017, Fed watchers had placed his odds at just 5%. Yet Powell proved ready when the moment arrived, becoming a workhorse on the Fed's board before ascending to lead the institution.
The defining moment of Powell's early tenure came in August 2018 at the Kansas City Federal Reserve's Jackson Hole symposium. In a speech later known in central banking circles as the "guided by the stars" address, Powell argued that the Fed had placed too much faith in theoretical models and economic assumptions. Perhaps the jobless rate could drop lower than conventional wisdom suggested without sparking inflation. Perhaps there was more room to let the economy run.
The result was remarkable. By 2019, the economy was nearly perfect: unemployment averaged 3.7%, inflation sat at 1.8%, wage growth hit 3.3%, and mortgage rates stayed below 4%. The Fed cut rates three times that year even as growth chugged along and joblessness hit two-decade lows. It worked spectacularly, until it didn't.
When COVID-19 shuttered the global economy in early 2020, Powell moved decisively. The Fed deployed emergency authorities at lightning speed, expanding its balance sheet from $4.2 trillion to $7.2 trillion between March and June. The central bank's unlimited ability to create money became the subject of internet memes: "Money Printer Go Brrr."
But Powell's focus extended beyond preventing financial collapse. He committed the Fed to supporting a robust labor market recovery through near-zero interest rates, massive securities purchases, and forward guidance on keeping money easy. In August 2020, he codified this into a new monetary policy framework that promised the Fed would not act preemptively to fight inflation out of fear alone.
By 2021, that framework faced its greatest test. As supply chains stumbled and fiscal stimulus pumped trillions into an recovering economy, prices began surging. Inflation hit 5% in summer 2021 and kept climbing toward 9% by mid-2022. Powell insisted it was transitory, a temporary byproduct of base effects and supply disruptions. The Fed kept rates near zero and pumped $120 billion monthly into the system.
He was wrong. By late 2021, as Biden moved to reappoint him, the depth of the inflation problem was becoming clear. Powell himself acknowledged the error in November 2021: "I think it's probably a good time to retire that word," he told Congress about "transitory."
The Fed's pivot came late. Rates didn't rise until March 2022. But when they did, Powell refused to hesitate. The Fed delivered historically large three-quarter-point hikes starting in June, signaling it would accept recession if necessary to restore price stability. At Jackson Hole in August 2022, Powell issued a stark warning: "We will keep at it until we are confident the job is done."
It echoed Paul Volcker, the legendary Fed chair who broke 1970s stagflation. By September 2024, inflation had fallen to 2.4% without triggering recession. Unemployment remained healthy at 4.1%.
Throughout his tenure, Powell faced relentless political pressure. Trump, dissatisfied with the Fed chair he had appointed, attacked him publicly in 2019, even calling him "our bigger enemy" than China's leader. Powell's response was silence, refusing to let presidential sentiment influence monetary decisions.
In Trump's second term, the pressure intensified beyond rhetoric into legal maneuvers. Faced with Justice Department subpoenas over a Fed renovation project in January, Powell released a video directly addressing the threat. "The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president," he said.
Powell's legacy ultimately rests not on avoiding all missteps but on how he handled the work itself. His "guided by the stars" instinct was right for 2018-2019 but proved costly in 2021. His emergency response to the pandemic was swift and probably saved the financial system. His later inflation fight was late but relentless.
Author James Rodriguez: "Powell's quiet stoicism and willingness to absorb political heat without flinching may matter more than whether every rate decision proved correct."
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