Powell, the most battle-tested Fed chair, finishes his term

By Bryan Mena, CNN

Washington (CNN) — The sharpest economic decline in American history, the highest inflation in more than 40 years, aggressive political attacks from the White House, and the worst-ever global energy shock.

Those are some of the extraordinary events that unfolded during the eight-year chairmanship of Jerome Powell at the Federal Reserve, an institution tasked with managing the economy to achieve maximum employment and stable prices. Powell’s term ends on Friday, with Kevin Warsh now confirmed by the Senate to take the reins.

The outgoing Fed leader is known for being a steady hand who was collaborative and decisive, some of his former colleagues told CNN. They credited Powell’s leadership for the Fed’s success at handling the numerous economic crises of recent years, making him perhaps the most battle-tested Fed chair in the US central bank’s 113-year history.

“It’s hard to think about another Fed chair who faced such a combination of punches to the US economy,” Patrick Harker, who served as president of the Federal Reserve Bank of Philadelphia from 2015 to 2025 and worked closely with Powell, told CNN.

“You really have to go back to Marriner Eccles for a Fed chair who dealt with anything similar to Jay [Jerome Powell]. He dealt with the Great Depression and the second World War,” he said of Eccles.

Uncharted waters

The Covid-19 pandemic was Powell’s most daunting challenge at the helm of the world’s most powerful central bank, economists and former Fed officials say.

“The pandemic was not anything that the Fed had experienced before,” said Loretta Mester, who served as Cleveland Fed President from 2014 to 2024 and worked with Powell. “It was a health situation that had implications for the economy, fiscal policy and monetary policy.”

The sudden shuttering of businesses in the spring of 2020 triggered record declines in gross domestic product, the broadest measure of economic output; and consumer spending, the lifeblood of the US economy. It also jacked up the unemployment rate to 14.8% in April 2020, the highest rate since the Great Depression.

Financial markets also crashed, marking the quickest descent to bear-market territory in history as panicked investors rushed into cash, in turn sparking a severe credit crunch. Powell quickly convened his central bank colleagues for two rare emergency meetings in March 2020 to slash interest rates to near-zero and inject liquidity into the financial system through a lending program.

Powell described the Fed’s emergency actions as an “unprecedented” effort to “forcefully, proactively, and aggressively” support the economy. The goal, Powell said, was to build a “bridge” to an economic recovery, and those efforts, coupled with the aggressive response from Congress, are widely credited with blunting the pandemic’s initial blow to the US economy.

“The (Fed’s) Covid response was successful at restoring market stability and preserving access to credit,” Erin Lockwood, a political science professor at the University of California, Irvine, and Fed resident at the Roosevelt Institute, wrote in a statement.

What the critics say

But the economy’s roaring comeback from the pandemic recession didn’t come without a hitch.

In 2021, when businesses scrambled to rehire the workers they laid off in the prior year, they offered higher wages to draw from a pool of workers that had shrunk during the pandemic for various reasons. Not only did American workers have the upper hand in the labor market, they were also flush with savings they had accumulated during the widespread shutdowns and pandemic-era stimulus payments. At the time, supply chains were also still recovering from pandemic-era disruptions.

All of those factors set the stage for the most intense inflation surge in four decades. But at the time, several policymakers, including Powell, said any price pressures would likely turn out to be “transitory” — a word that Fed officials would later regret. Inflation ended up being longer lasting, rather than transitory, largely due to workers demanding wage increases to offset higher inflation, known as “second-round effects.”

Eventually, the Fed realized it needed to begin raising rates, which it did in March 2022, in what turned out to be the most aggressive rate-hiking cycle since the 1980s. In times of high inflation, the Fed raises its key interest rates to cool down an overheating economy and take some wind out of inflation; and typically does the opposite whenever unemployment is rising and growth needs a boost.

But since monetary policy affects the economy with a lag, it was already too late to stop inflation from reaching a four-decade high in June 2022. At the time, Powell warned of the necessary “pain” the Fed rate hikes could bring to households in its fight to tame inflation. Yet despite higher borrowing costs squeezing many Americans — especially lower-income families — the US economy proved remarkably resilient, avoiding a recession.

Powell’s detractors frequently point to that inflation surge as a major mistake for the Fed. Mester, who was on the Fed’s rate-setting committee at the time, told CNN “we did act too slowly,” but said it was an “unprecedented situation” and no one really knew how it would ultimately play out.

Harker echoed that sentiment, describing it as a “misreading,” but said the Fed wasn’t alone in making the wrong call.

“The consensus of not just the Fed, but of the economics profession at the time, was that inflation was going to be transient,” Harker said. “This was not just a Fed mistake, it was really a mistake of forecasters on Wall Street and academic economists.”

The centerpiece of Powell’s legacy

Importantly, Powell’s legacy will also be defined by his fight to maintain the Fed’s ability to set interest rates without political interference.

Just months into Powell’s chairmanship in 2018, Trump started criticizing him and the central bank for not lowering rates. The berating resumed after Trump began his second term. Over the past year, the president has put an unprecedented amount of pressure on the Fed in an attempt to force lower interest rates. Trump has said rates must be lower to reduce the government’s borrowing costs and to juice economic growth.

The Fed, however, sets rates based on economic conditions and the outlook, not the demands of a sitting president — a feature enshrined in the congressional charter that established the Fed in 1913, and also a cornerstone of the US economy’s stability.

It’s a point that Powell has reiterated frequently: “Independence is what allows us to do our job. It’s critical that we have that so that we can preserve price stability,” he told reporters in March after the Fed’s rate decision that month.

But that hasn’t stopped Trump from carrying out an extraordinary pressure campaign to bend the Fed to his will. He has repeatedly insulted Powell and threatened to fire him; his allies continue to characterize a renovation to the Fed’s headquarters as evidence of mismanagement under Powell; and the president is attempting to push out Fed Governor Lisa Cook in a landmark case that will be decided by the Supreme Court.

Powell has fought back. In January, he revealed in a stunning video statement that federal prosecutors were looking into testimony he gave to Congress last year on the Fed’s renovations. Powell rebuked those efforts as a pressure tactic from the executive branch. Later that month, Powell attended oral arguments at the Supreme Court in the Trump v. Cook case, in an unusual show of support for Fed independence. Even during his final news conference as chair in April, Powell continued to drive home the importance of Fed independence.

“It’s not about the Fed or the institutions, it’s about the benefits of a central bank that makes decisions based on analysis and our best thinking rather than trying to help or hurt politicians,” he said. In that speech, Powell also confirmed that he will retain his role as governor on the Fed’s board until he determines the federal probe into him is truly over.

Powell said he does not intend to interfere with Warsh’s leadership, emphasizing the importance of respecting the authority of the Fed chair. Powell even gave the incoming Fed chair some advice.

“Stay out of elected politics,” Powell said. “If you want democratic legitimacy, you earn it by your interactions with our elected overseers, and so it’s something you need to work hard at — and I have worked hard at it.”

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