By Nick Timiraos
For the last few years, Jerome Powell would walk past a portrait of Arthur Burns on his way to his office, addressing him silently.
I'm not going to be you.
Burns, the Fed chair under Richard Nixon, embodied two failures: He allowed inflation to get out of control, and he yielded to a president who wanted lower interest rates.
Powell faced both hazards -- inflation and presidential pressure -- and more during his eight years as chair. The Fed won broad credit for its novel pandemic response, took a share of the blame for the high prices that followed and confounded predictions by bringing inflation down without a recession. Powell then weathered the most sustained political assault on the central bank in its modern history.
"It's probably the most difficult time to be a central banker since the Fed was created," said Daleep Singh, who ran the New York Fed's markets desk in 2020.
Powell leaves with the political verdict still being fought and the economic one still being argued. Inflation, even before the Iran war, was nearly a percentage point above the Fed's 2% goal.
Under Powell, the Fed took big swings. When the Covid pandemic hit, he slashed rates to zero and pushed the Fed's operational reach to its limits, expanding lending into corners of the economy the central bank had never touched. He then raised rates at the fastest pace in four decades as inflation raged. But at other times, Powell refused to swing: when economists urged the Fed to engineer a recession to stamp out inflation, or when a president pressed him for deeper cuts even as prices threatened to rise again.
The institution Powell hands to Kevin Warsh, his successor as chair, is one he tried to keep out of partisan fights. When that failed, he focused on preventing the fights from changing the Fed's analytical, evidence-driven culture. That battle is still being waged and helps explain why Powell, 73 years old, will stay on the Fed's board, the first chair to do so in more than 75 years.
Covid shakes global markets
The pandemic came first. In March 2020, as global markets seized and the Treasury market began to malfunction, Powell and colleagues rushed out unprecedented emergency programs. Internal Fed scenarios that spring included a "depression" path with unemployment near 20% for a year.
Powell told colleagues it felt like swimming after a speedboat -- working at full speed and falling behind. By the end of the month they were buying Treasury and mortgage bonds in never-before-attempted quantities after cutting rates to zero. The Fed pushed for the first time into direct lending to corporations, municipalities and midsize businesses.
"I would go to bed thinking that a market wouldn't open up, and then at eleven o'clock there would be a new program," said Ajay Rajadhyaksha, who heads global research at Barclays. "Next morning, if it didn't work, it would be upsized."
For several programs, their announcement was enough. Markets that had been panicking recovered once they knew the Fed would stand behind them. Even President Trump, who had spent the previous year fuming at the Fed chair he had appointed, called to congratulate Powell as "my most improved player."
Powell would later describe the most harrowing weeks. "You feel like hell all the time. Dead on your feet, not sleeping well, just an awful feeling," he said in a 2021 interview. "You better damn well get it right."
A bet on 'transitory' inflation
Getting it right would become even more difficult. By mid-2021, as vaccinations encouraged Americans to venture out after a year of pandemic restraint, prices rose at a pace not seen in decades. The Fed's confidence that the surge would be transitory was widely shared by economists at the time. But in retrospect, leaving the monetary spigots wide open would become the biggest mistake of Powell's tenure.
Officials had made a bet: Inflation was a reopening problem that would fix itself. Supply-chain bottlenecks would resolve; pandemic-era demand would settle.
They had their reasons. "We underdid it in the great financial crisis, so we overdid it here," said Patrick Harker, who was president of the Philadelphia Fed for a decade before stepping down last June.
It didn't help that Powell and his colleagues had just adopted a new overarching strategy designed for the problem of the prior decade: a chronically weak economy. That strategy also hadn't anticipated President Biden's $1.9 trillion stimulus package in March 2021.
The framework proved to be "a delicately constructed Maginot Line against the perceived endless threat of deflation," said John Cochrane, an economist at Stanford's Hoover Institution. A central bank that had just built defenses against one threat, in his view, was poorly equipped to recognize a different one when it arrived.
Soft landing
The bet collapsed by November, the same month that Biden reappointed Powell. Consumer prices accelerated. Russia's invasion of Ukraine a few months later pushed inflation to a 40-year high.
Powell spent the next two years fixing his misjudgment. To beat back inflation, the Fed lifted rates at its fastest pace in four decades. Weeks after Powell ruled out 75-basis-point increases, the Fed did one -- and then three more.
In August 2022 at the Fed's Jackson Hole symposium in Wyoming, Powell delivered an eight-minute speech invoking Paul Volcker and warned that driving inflation down could bring "pain." At the evening reception, the country-western band played. Powell, who in earlier years had hit the dance floor, sat it out. "You don't get to dance," he told a colleague, "after a speech like that."
Still, Powell refused to abandon the idea of a soft landing -- bringing inflation down without a recession. Taking questions after a speech that fall, he rejected a "shock and awe" framing from JPMorgan economist Michael Feroli urging even stiffer increases. "We wouldn't just raise rates and try to crash the economy and then clean up afterward," Powell said.
The rate whiplash had clear costs. Higher rates locked in housing-market dysfunction. Owners who had refinanced at pandemic-era lows wouldn't move; would-be buyers couldn't afford what was for sale.
The hiking cycle also stressed banks that had loaded up on long-dated Treasurys when yields were near zero. In March 2023, the strain broke through. Silicon Valley Bank, a regional lender heavy with such bonds, failed in the largest bank collapse since 2008.
Other banks wobbled. The Fed and Treasury moved fast to contain the panic.
SVB marked the second major stain for the Powell Fed, this time inside the bank-supervision apparatus rebuilt after 2008.
"Hundreds of thousands of pages of regulation, an army of regulators, and they can't see plain-vanilla interest-rate risk. Truly they missed an elephant in the room," Cochrane said.
Asked that spring about regrets, Powell reached for Frank Sinatra's line. "I've had a few, sure," he said. "Who doesn't look back and think that you could have done things differently? But honestly, you don't get to do that."
By summer 2024, the soft landing came into view. Inflation was falling, unemployment had risen modestly, wages had cooled. The Fed began cutting rates that September. The pain Powell had warned about had been gentler than almost anyone had thought possible.
"I think it will go down as one of the great runs in modern Fed history, " said Singh.
Powell reshaped how the Fed talked. His predecessors were Ph.D. economists. Powell, who had worked in finance, spoke "in a way that was more down to earth" without "academic mumbo jumbo," said Krishna Memani, a longtime investment manager. That style would emerge as an institutional asset when scrutiny intensified.
Independence defended
The chapter of Powell's tenure that might endure most, decades from now, had nothing to do with monetary policy. A sitting president attempted, more systematically than any predecessor, to bend the Fed to his will. Powell withstood it when others across American institutions -- in Congress, in corporate boardrooms, in universities and law firms -- chose accommodation.
Trump began attacking Powell soon after returning to the White House. As the president's tariffs raised the threat of slower growth and higher prices, he called Powell a "major loser" for not cutting rates and toyed with firing him. His administration argued the Fed was fighting the wrong war, this time by being unduly concerned about inflation.
Powell had built bipartisan credibility for exactly this moment, meeting frequently with Republican and Democratic lawmakers over years. "When this fight came, the Fed had a lot of friends because Jay put the time in," Harker said.
The pressure crossed a new line in August. For the first time, a president tried to fire a Fed governor, with Trump targeting Lisa Cook.
Around the same time, the president seized on cost overruns at the Fed's headquarters renovation as a way to challenge Powell's competence. Trump's Justice Department later opened a criminal investigation that the president cheered on.
Powell didn't take the probe quietly. In January, he released a startling video disclosing he was under investigation and labeling it a pretext to pressure the central bank to cut rates.
Powell's response didn't surprise those who had watched him closely across years of joint crises. "Jay has this sort of inner strength and principled view of what his duty is," Christine Lagarde, the European Central Bank president, said in an interview. "That's deeply inside himself."
Powell's tests will outlast his chairmanship. In April, federal prosecutors said they would halt the renovation probe. The Cook case sits at the Supreme Court, where the justices are weighing when a president can fire Fed governors.
"Powell will of course go down in history for his last great act, standing up to Trump. I think this reveals his honesty, decency and reverence for the institution," said Cochrane, the economist who criticized Powell's handling of inflation. "I doubt others would have done better."
Write to Nick Timiraos at Nick.Timiraos@wsj.com
(END) Dow Jones Newswires
May 13, 2026 22:00 ET (02:00 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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