In his first term, Mr. Trump took the remarkable step of tweeting, “who is our bigger enemy, Jay Powell or Chairman Xi?” By chance I was sitting a few feet away from Mr. Powell at that very moment, at a Federal Reserve conference in Jackson Hole, Wyo. I was amazed to see how he took it in stride, something I would never have been able to do. Mr. Powell has continued to tune out the noise. He hasn’t backed down; he hasn’t joined the resistance. He just kept doing his job, even as the president threatened to fire him or even prosecute him. In 2024, after so many years of public intimidation, he was asked at a news conference if President Trump had the power to fire him. Mr. Powell responded with a single word: “No.”
He’s made mistakes, some of them serious. During the Covid years, the Federal Reserve continued stimulating the economy even as inflation rose and rose. Given the impact of the Biden administration’s stimulus package and the scale of the global supply-chain disruptions, there’s a limit to how much impact the Fed could have had. But at a minimum it could have better grasped the problem, instead of Pollyannaishly insisting it was all transitory. That would have helped a bit.
The case for the independence of central bankers in general, and Mr. Powell in particular, is not that they are always right. It is that they are willing to learn and change course. That is what the Fed did in 2022 when it raised rates much further and faster than just about any of its critics, including myself, thought was practical or wise. By the end of 2024, inflation was closing in on the Federal Reserve’s 2 percent target without triggering a recession, a rare so-called soft landing. Critical to enabling this was Mr. Powell’s personal credibility. Trust in his leadership kept inflation expectations from rising. Businesses could slow their price increases knowing that other businesses would be doing the same. Throughout it all, Mr. Powell was crystal clear about the need to avoid being drawn into political controversies and to keep the Fed’s decision making truly independent.
In January, the Trump administration significantly ratcheted up the pressure, as the Justice Department opened a criminal inquiry into Mr. Powell himself, relating to cost overruns in the renovation of one of the Federal Reserve’s buildings. In economics departments, they teach you how to handle the situations central banks are likely to find themselves in: excessive inflation, financial crises, runs on the banks. But no one teaches you how to handle a situation like this. Mr. Powell wrote his own playbook. He posted a plain-spoken two-minute video addressing the American public. “No one — certainly not the chair of the Federal Reserve — is above the law,” he said. But the president’s “unprecedented action should be seen in the broader context of the administration’s threats and ongoing pressure.” He vowed to continue performing his duties “without political fear or favor.”
Within 24 hours, former Fed chairs of both parties, leading Republican members of Congress and the business community had lined up behind him. Mr. Trump’s gambit had completely backfired.
