Even Jay Powell’s final days as Federal Reserve chair were marked by the conflict that defined his eight-year tenure leading the US central bank.
Stephen Miran and Michelle Bowman, Fed governors nominated by President Donald Trump, objected on Friday to Powell remaining chair to allow time for Kevin Warsh to be sworn into office. They called it a step “unlike any historical precedent”, despite it having occurred several other times unopposed.
The vote passed but was a stark reminder that Warsh will inherit a Fed locked in a battle like no other in its 112-year history.
It also highlights how Powell, who was the target of a criminal investigation by Trump’s Department of Justice, has become a symbol of resistance to the president’s attacks on US institutions — at one point appearing in an extraordinary video rebuking Trump.
“We should not underestimate the courage it takes to stand up to the president of the United States,” said Gita Gopinath, a former senior IMF official who is now a professor at Harvard. “The fact that he stood his ground for the institution is a gift — not just to the Fed and all future chairs, but to the central banking community everywhere in the world.”
Even Powell’s allies concede his tenure was marred by high inflation, the collapse of Silicon Valley Bank and trading scandals that prompted the resignation of several senior Fed officials.
Yet his stewardship of the central bank through the pandemic, and his willingness to challenge Trump’s threats to the institution’s independence, may have secured his place as one of the Fed’s most consequential chairs.
“Powell has successes and mistakes to his name. But he stands out as having thought more carefully about the Fed’s democratic legitimacy than any chair since Paul Volcker,” said Paul Tucker, a former deputy governor at the Bank of England, referring to the Fed chair who successfully fought the great inflation of the 1970s and early 1980s.
At the Fed, history hangs heavily over every chair. Every day Powell spent in his office on the top floor of the Martin Building in Washington, he had to walk past portraits of every Fed chair who had gone before — among them Volcker and his antithesis, Arthur Burns.
When Trump nominated Powell in 2017, some questioned whether the Washington native, who trained as a lawyer and had moved between private equity and public service before becoming a Fed governor in 2012, was the right man to succeed academic heavyweights such as Janet Yellen and Ben Bernanke.
Powell took the helm of the Fed in 2018 as the economy was growing at a healthy clip, joblessness at its lowest in nearly two decades and resurgent equity and property markets.
But his relations with the White House quickly soured as a series of Fed rate rises prompted Trump to ponder during his first term as president whether Powell or China’s leader Xi Jinping was a “bigger enemy” to America.
Powell responded by ratcheting up his appearances on Capitol Hill. The Fed chair spent so much time with lawmakers such as Thom Tillis that he ended up striking up a rapport with Gus, the chocolate Labrador that often hung around the Republican senator’s office.
“You ought to go by and see him,” said Tillis at a hearing in the spring of 2024. “I don’t want to disturb his nap,” Powell replied.
The bond with Tillis has since proven crucial in protecting the Fed in repeated onslaughts from the Trump administration.
“Powell got a whole bunch of people on Capitol Hill on each side to know and respect him,” said Robert Tetlow, who until recently was a senior economist at the Fed. “That helped him in his job and I have to think helped insulate him somewhat from the White House.”
Some content could not load. Check your internet connection or browser settings.
While Powell was at the Treasury in the early 1990s, he watched Alan Greenspan build relationships within the government. That convinced Powell he needed to follow the former Fed chair’s lead and spend more time in Congress than his predecessors Yellen and Bernanke.
“The accountability for the Fed runs through Congress,” said Claudia Sahm, a former Fed official who is now chief economist at New Century Advisors. “That’s not just about having people on speed dial — it’s answering questions, explaining policy and getting feedback.”
The Fed’s swift response to the Covid-19 pandemic won Powell plaudits. But the Fed was wrongfooted by the burst of inflation that followed — judging the most serious bout of price escalation for a generation to be “transitory” as the central bank continued to buy massive amounts of US government debt.
“The Fed’s number one job is price stability,” said Jeff Lacker, a former president of the Richmond Fed. “On that, I think you have to say his record is somewhat regrettable.”
EJ Antoni, chief economist at the right-wing Heritage Foundation, said: “Powell’s legacy will mostly be a catalogue of his many mistakes, but inflation will certainly be the centrepiece.”
Some content could not load. Check your internet connection or browser settings.
The US central bank eventually responded aggressively in 2022 once rate-setters conceded that inflation would prove stickier than they had hoped. A series of steep rate increases helped engineer a soft landing, with inflation falling back substantially from its peak while the US economy continued to grow strongly and unemployment remained low.
The following year, a combination of rate increases and lax supervision contributed to the collapse of Silicon Valley Bank, one of the biggest bank failures in US history.
Despite inflation cooling from its peaks by the time of the 2024 election, high prices have lingered and Trump seized on the cost of living crisis to secure his return to the White House.
Powell initially played down Trump’s renewed campaign against the central bank, ignoring the president’s barbs that he was a “moron” for not lowering borrowing costs. The central bank chair also refrained from publicly defending governor Lisa Cook after Trump last year sought to fire her over mortgage fraud allegations, which she denies.
The Supreme Court has said Cook can remain in post while it decides the case.
Powell also made some moves towards shaping the Fed into an institution more aligned with the administration’s worldview, enabling Treasury secretary Scott Bessent to take a more active role in shaping the regulatory agenda, trimming the workforce by 10 per cent and quitting a central bankers’ environmental collective.
His willingness to accommodate Trump’s whims changed dramatically on a Sunday evening this January.
In a two-minute video address Powell called out the president for launching a criminal investigation into his testimony to the Senate banking committee. While ostensibly about whether he misled the committee over his remarks on a $2.5bn renovation of the Fed’s headquarters, Powell said the probe was really a pretext to press him into rate cuts.
Every living former Fed president quickly condemned the probe as “how monetary policy is made in emerging markets with weak institutions”.
European Central Bank president Christine Lagarde and Bank of England governor Andrew Bailey were among a group of international policymakers who penned a letter in support.
“Central banking is a pretty close-knit group of people who face the same issues and are constrained by the same frameworks, language and codes,” Lagarde told the FT. “We thought it was necessary to give him support — and to recognise the value of independence and the risk of damaging that.”
Bailey added: “Jay’s legacy will certainly be for ensuring stability in the global economy during highly uncertain times and an utmost dedication to public service.”
Powell’s message was heard in Congress where Tillis became the public face of a band of Republicans willing to block Trump’s nomination of Warsh until the criminal investigation was closed.
With weeks to spare before the end of Powell’s term and Tillis standing firm, Jeanine Pirro, the US attorney leading the investigation, dropped the probe, saying she would only reopen it should the Fed’s inspector general uncover new evidence that warranted it.
Powell’s strategy of building deep links with lawmakers appears to have contained Trump’s threats for now. Yet he will stay on at the Fed as governor amid fears that risks to independence will persist. Handing over his seat would offer the president the opportunity to pick another ally to sit on the board.
“Did all the well-documented time and effort that Powell put into going to Capitol Hill pay off? Or was that all swept away by Congress’s deference to Trump?” said Adam Posen, president of the Peterson Institute for International Economics think-tank. “We’re going to have to wait for historians to figure that out.”
Data visualisation by Eva Xiao in New York and Chris Giles in London
