Jerome Powell concludes his eight-year tenure as Chair of the Federal Reserve this week, a period defined by unprecedented economic challenges including a global pandemic, soaring inflation not seen in four decades, and significant political interference from the Trump administration. Powell's decision to remain on the Federal Reserve Board of Governors following his chairmanship is an unusual move, signaling his commitment to the institution during a turbulent time.
Powell, who served as Fed Chair from 2018, navigated the central bank through the economic fallout of the COVID-19 pandemic. This crisis led to a dramatic surge in unemployment and necessitated swift, forceful action from the Fed. "When the pandemic hit, for example, he did not hesitate to take action to help keep the economy going for the American people," noted Patrick Harker, former president of the Federal Reserve Bank of Philadelphia and a professor at the University of Pennsylvania's Wharton School of Business. Harker, who served alongside Powell on the Federal Open Market Committee (FOMC), described Powell's leadership style as "steady, and when need be, forceful."
Harker elaborated on Powell's approach to leadership within the FOMC, emphasizing his role as a consensus builder. "The committee is a consensus. You can't – no one person can get their way on the committee. It really is 19 people in a room with strong opinions," Harker stated. He added that Powell would clearly articulate his own views while actively listening to other members, a practice Harker believes is essential for effective decision-making, both at the Fed and in broader life. This collaborative yet decisive approach was particularly evident during the pandemic's onset.
Reflecting on the Fed's response to the pandemic, Harker drew a contrast with the response to the 2008 financial crisis. "If you look at the great financial crisis in 2008, '09, '10, I think the consensus is that we underresponded there," he said. In contrast, during the pandemic, the Fed not only cut interest rates to zero but also worked in tandem with fiscal authorities, who injected approximately $6 trillion into the economy. While this stimulus helped the labor market recover rapidly, it also contributed to a significant rise in inflation once the immediate crisis subsided.
The latter part of Powell's term was marked by intense scrutiny and pressure from then-President Donald Trump. Trump repeatedly called for lower interest rates, publicly criticized Powell, referring to him as "a moron," and even initiated a criminal investigation into renovations at the Federal Reserve building. Furthermore, Trump attempted to remove Governor Lisa Cook from her position. Powell himself expressed concern over these actions, stating in a late-month press conference, "I worry that these attacks are battering the institution and putting at risk the thing that really matters to the public, which is the ability to conduct monetary policy without taking into consideration political factors."
Powell's decision to remain a Fed governor after his term as chair expires is seen by Harker as a testament to his dedication to the institution. "I give him a lot of credit. This is not an easy thing for him to do, and he's staying on because he cares about the institution. He's staying on until all the cloud that's over the Fed gets lifted," Harker explained. He stressed that credibility is the "real coin of the realm" for the Federal Reserve, and Powell's continued presence aims to help preserve this vital asset during a challenging period.
Harker emphasized that maintaining the Fed's credibility requires the collective effort of all its members. "I think not only the chair, but the other 18 members have to continue to do their job. And what is that job? Look objectively at the data. Look at what it's telling you, and even though it may be difficult, do the right thing for the country," he stated. He reiterated that the Fed's mandate often involves making unpopular decisions, underscoring the critical importance of its independence from political influence to fulfill its mission effectively.
Looking ahead, Harker anticipates that the FOMC's operational approach will likely remain consistent despite leadership changes. The committee will continue to grapple with the persistent challenge of inflation. Inflation had already been exceeding the Fed's 2% target before the onset of a recent war, and the conflict and its aftermath are expected to prolong elevated inflation levels. Harker suggested that the Fed's recent decision to maintain current interest rate levels reflects a strategy of allowing existing uncertainties to dissipate.
Regarding the independence of the incoming chair, Kevin Warsh, Harker expressed confidence. "No, I don't," he responded when asked about concerns over Warsh's independence. "I think he will be an institutionalist because he understands how vitally important that is to this country. He's a student of the Fed, and I think he will maintain the independence of the Federal Reserve."
When asked to provide a grade for Powell's tenure, Harker offered a strong endorsement, particularly given the extraordinary circumstances. "He faced things that were beyond the normal course of duty. So if you add on the extra credit, if I'm grading, getting us through the pandemic, I would give him an A+," Harker concluded. Powell's leadership navigated the Fed through a period of historic economic upheaval, balancing the need for decisive action with the imperative of maintaining institutional integrity and public trust.
