In late summer 2024, Federal Reserve Chair Jerome Powell walked out to the podium at the central bank’s summer conference in Jackson Hole, Wyo., and said the U.S. central bank was winning the fight against inflation.
After battling the highest inflation rate in a generation starting in 2021, the “time has come” for interest-rate cuts as there was “good reason to think the economy will get back to 2% inflation while maintaining a strong labor market,” Powell said.
Only two years earlier, Powell had pledged to do what was needed to bring inflation, then running at a 6.6% rate, back down to the Fed’s target of 2%, even if it meant “some pain” to households and businesses.
Shortly after Powell spoke at Jackson Hole in 2024, inflation slipped to 2.3%, but that would turn out to be as low as it would go. Inflation has now been above the Fed’s 2% target for six years and counting, with no end to such elevation in sight.
As Powell’s eight years at the helm of the central bank come to a close this week, his legacy will be shaped by three things: his mistake in calling inflation “transitory” in 2021 and how two ongoing battles — with high inflation and President Donald Trump over Fed independence — end. On the surface, those ongoing battles are not going well.
The Federal Reserve has two main jobs: to keep unemployment low and inflation at bay. For years under Powell, the Fed has been struggling with persistently high inflation and Americans have felt the impact at the grocery store, the gas pump and their monthly bills.
Whether inflation comes back down in the coming years will be a key factor in how history remembers Powell. “Powell’s greatest legacy will be determined after he leaves,” said Vincent Reinhart, a former top Fed staffer and now chief economist at BYN Investments. “The big question will be, ‘is inflation back at 2%?’”
“If inflation stays high we’re going to look back at Powell and say ‘that’s where the slippery slope began,’” he said.
And the story over the Fed’s independence — the belief that the U.S. central bank sets interest rates and makes monetary-policy decisions based on economic data and not Washington political pressure — might still be “in the first chapter,” said Derek Tang, co-founder of LH Meyer/Monetary Policy Analytics.
“Central banks have enjoyed independence and respect from their governments and their citizens and they’ve gotten used to this,” said Tang. Now that there are big structural changes going on in the economy and big political changes, such as populism, that power dynamic is going to shift, he said.
Kevin Warsh, Trump’s pick to replace Powell, will face questions from day one on whether he will protect the central bank’s independence.
It’s not unusual for the legacy of a Fed chair to form in the years after the job is done. “I never grade a Fed chair until maybe five or 10 years later,” Reinhart said. He noted how the legacy of former Fed Chair Alan Greenspan changed dramatically.
As Greenspan left office in 2005, Greenspan was lionized as the “maestro,” or the greatest central banker of the century. A few years later “it didn’t look so good for him,” said Reinhart, who served as one of Greenspan’s top staffers at the Fed. Greenspan is now blamed for looking the other way as banks and brokerage firms bought and sold massive amounts of risky mortgage debt, which precipitated the devastating global financial crisis of 2008.
The ‘transitory’ mistake
With the COVID public-health emergency raging, Powell made a mistake that would define his eight years as Fed chair. He misread the labor market and the persistence of price shocks associated with the pandemic and the federal government’s fiscal response to it.
Powell and his team insisted that the rapid increase in prices in 2021 were “transitory” and would quickly dissipate. He was wrong and the U.S. central bank’s monetary policy that followed led to the highest inflation rate in 40 years.
The “transitory” view of inflation kept the Fed from raising interest rates to combat the rapid increase in prices until the following March.
“In hindsight, it would’ve been better to have tightened policy earlier,” Powell acknowledged in a 2024 interview with “60 Minutes.”
At the time, inflation seemed to be mostly limited to the goods sector, which indicated the increase in prices was the result of supply-chain issues following COVID-related closures, Powell said.
“We thought that the economy was so dynamic that it would fix itself fairly quickly. And we thought that inflation would go away fairly quickly without an intervention by us,” he explained.
At the same time that inflation was rising, the Powell Fed was also buying bonds in the market — quantitative easing — and swelling its balance sheet the whole time that inflation pressures were building. These purchases continued until early 2022.
“With the clarity of hindsight, we could have — and perhaps should have — stopped asset purchases sooner,” Powell said in a speech last year.
Powell said the U.S. central bank kept up its asset purchases, which keep financial conditions loose, because it was worried financial markets would react negatively and push bond yields higher, as happened in 2018 and 2013.
“During that tumultuous period, we continued purchases in order to avoid a sharp, unwelcome tightening of financial conditions at a time when the economy still appeared to be highly vulnerable,” Powell said.
While there’s no evidence Powell’s decision was politically motivated, the approach to rate policy struck some on Wall Street as so bizarre that they felt Powell’s decision had been driven by politics.
Billionaire macro-trading legend Paul Tudor Jones suggested that Powell held off on raising interest rates — which were stuck close to zero for all of 2021 — because he wanted then-President Joe Biden to reappoint him. Biden was hoping a strong economy fueled by lower rates would help him get re-elected.
After Biden nominated Powell for a second term, “it was go time” for rate hikes, Jones said in a podcast interview last month.
Inflation got so strong that the Fed had to rapidly tighten monetary policy starting in March 2022, even engineering three successive 75-basis-point hikes. The Fed didn’t pause hiking until July 2023, when its benchmark rate hit a range of 5.25%-5.5%.
The Fed’s inflation gauge fell from 7% down to 3.4% over that period.
The last-mile problem of inflation
Powell and the Fed pushed inflation lower until the month after Powell’s 2024 speech in Jackson Hole. That proved to be the low point. Inflation has picked up from there.
The Fed reached the last mile and “got stuck,” said Carola Binder, a professor of economics at the University of Texas at Austin.
At the time, the Fed won plaudits for a “soft landing” — bringing down inflation without causing a recession. But with inflation still far from the Fed’s target, those decisions are reopened to scrutiny.
“In retrospect maybe they ought to have tightened a little sooner and a little more,” Binder said.
When he came into office, Powell, who is not a trained economist, adopted a conversational tone at his press conferences, confident he could communicate in plain language compared to the past two Fed chairs, Ben Bernanke and Janet Yellen, who were economists and could disappear into word clouds when stressed.
But after initial missteps that confused markets, Powell’s press conferences got more scripted and he became less willing to entertain questions from reporters on broader economic topics than interest-rate policy.
Fed officials started to cut rates in September 2024, bringing its benchmark rates down 100 basis points by December of that year.
After a pause, it brought rates down further, cutting 75 basis points in the last three meetings of 2025, and bringing the benchmark rate to its current range of 3.5%-3.75%.
Dana Peterson, chief economist at the Conference Board, said the cuts in 2024 were justified, but said she thinks the last three cuts last year were not needed. “I thought that was a policy mistake. The labor market was fine and inflation was coming down,” Pederson said. Fed officials got spooked by weak growth in monthly payroll gains.
“Now it looks like the Fed might have to turn around and raise them back up,” she added.
At his last press conference, Powell said inflation “had gone pretty much back to target” before the tariff shock and the Iran war.
Reinhart agreed the tariffs and energy pressures were out of the Fed’s control but said earlier mistakes had put the central bank in its difficult spot.
“I agree completely that Powell’s pursuit of reclaiming the 2% goal has very much been hostage to events, but I also remind you that Powell is in that position because they had to make very large changes to policy rates to correct an earlier mistake,” Reinhart said.
Blinder said that getting inflation down to 2% is going to require some rate hikes eventually. “It is on them to get inflation back to 2%,” Binder said.
But now the concern is that monetary-policy decisions, like rate hikes, might be driven by political considerations.
Trump vs. Powell
In a surprise move on a Sunday night this past January, Powell flipped the script on President Donald Trump. After absorbing years of criticism from Trump, Powell went on offense and told the nation that federal prosecutors had opened a criminal investigation into whether Powell had lied to Congress about the expensive renovations of the Fed’s headquarters.
Powell, who was nominated by Trump to lead the central bank in 2017, called the investigation a pretext to damage the central bank’s ability to independently set interest rates.
Until the video, Powell had never commented on Trump’s attacks, maintaining a discipline that impressed observers. Trump’s attacks had been relentless.
In August 2019, as Powell prepared to meet with central bankers from around the world at the Fed’s Jackson Hole retreat, Trump called the Fed chair “an enemy” of the United States. “He’s like a golfer who can’t putt,” Trump once said.
This year, Trump has taken to calling Powell “Too Late” and recently posted a picture of Powell falling into a trash dumpster.
Trump even engineered a “gotcha” press conference last summer by inviting himself to the Fed to review building renovations. The confrontation ended with Trump and Powell standing together awkwardly wearing construction helmets and Powell pushing back on the president’s cost estimates for the renovation.
“Powell’s been extremely calm in the face of really intemperate attacks on him, including accusations of criminality. I think the dignity he has shown has been huge,” said Raghuram Rajan, former head of India’s central bank and now a professor of finance at the University of Chicago Booth School of Business.
Powell’s calm but forceful defense of Fed independence likely staved off larger attacks on the institution and won him admiration and awards, like the John F. Kennedy Profile in Courage award.
Powell has even decided to stay on at the Fed as a governor after his term as chair ends this week to try to protect the U.S. central bank from political pressure.
“Powell’s legacy is likely to reflect a striking irony: It will have been secured by the man who sought most aggressively to undermine him,” Mohamed-El-Erian wrote in his recent appraisal of the Fed chair.
Whether Powell’s disciplined pushback to the president will be enough to secure the Fed’s independence in the long term remains in question. Warsh, Trump’s pick to succeed Powell, is widely seen as more vulnerable to pressure from the White House.
Trump has been pushing Powell to cut rates for months, and as Warsh campaigned for the position, he made the case on television and elsewhere for rate cuts, even amid elevated inflation. How the Warsh-led Fed responds to persistent inflation — particularly ahead of the midterm elections this fall — will be a major test of both his and the institution’s independence from political forces.
“Powell is not superhuman, he cannot defend the institution on his own,” said Claudia Sahm, a former top Fed staffer and now chief economist at New Century Advisors, in a recent CNBC interview.
“The pressure campaign against the Fed does not end until the White House backs off and lets the Fed do its job, and I’m not super optimistic that that is going to happen anytime soon,” she said.
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