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Jerome Powell, who stepped down this week as chair of the Federal Reserve, had his hits and misses. The Fed was late to react as prices started rising when the Covid pandemic abated, but they eventually acted forcefully and achieved the most rare of feats: a “soft landing”, curbing inflation without sparking a recession or damaging employment.
Strangely, given the chaotic era of pandemic and tariffs that coincided with Powell’s time as chair, monetary policy may not define his legacy. Powell’s most lasting accomplishment will most likely be his outspoken efforts to defend the independence of the Fed from an assault by the imperial presidency of Donald Trump.
That job, unfortunately, is not done.
The chair managed the president smoothly, ignoring his demands to slash interest rates at every turn. When Trump went for the jugular, threatening to indict Powell over the spurious charge of lying to Congress about the cost of refurbishing the Fed’s headquarters, he pushed back, refusing to step down and publicly condemning Trump’s real motivation: payback.
“The best thing Jay Powell did for the Fed’s independence is that he just did the job as you are supposed to do it,” said Austan Goolsbee, president of the Federal Reserve Bank of Chicago. “Nobody knew how the Fed would respond under direct attack. His approach let us put our heads down and do the job as it’s supposed to be done.”
Even if Kevin Warsh, Trump’s pick to replace Powell, proves to be the president’s sock puppet, eager to cut rates regardless of mounting fears of higher inflation, he is unlikely to convince most of the 11 other members of the federal open markets committee, only two of which are Trump appointees.
But the Fed is not safe.
Trump’s ultimate goal is to subjugate the Fed to his will. Though he has failed thus far, he has the right supreme court to do it, run by a conservative majority that buys into the “unitary executive theory”, which in the vernacular means let-Trump-do-whatever-he-wants.
Trump is unhappy about Powell’s decision to stay on the Fed’s board after stepping down as chair, which deprives the president of a seat to fill. Though he was forced to end his legal attack on Powell, Jeanine Pirro, the US attorney for the District of Columbia has said she might reinitiate the process.
As Janet Yellen, who preceded Powell as Fed chair put it: “The threat to the Fed’s independence remains a very significant challenge when a president can threaten members of the FOMC and find ways to remove them because he doesn’t like their views on monetary policy.”