By Megan Leonhardt and Emily Russell
As chair of the Federal Reserve, Jerome Powell faced a number of concussive events: a pandemic at a scale the world hadn't seen in the past century, the biggest inflation surge in decades, the highest import tariff rates in more than 90 years, and unprecedented pressure on the central bank's independence.
The odds any Fed chair would face all four of those shocks within eight years is roughly .018%, or 1 in 5,550, according to Kristin Forbes, professor of global economics and management at MIT-Sloan School of Management.
Yet it is too simplistic to say that Powell was simply very unlucky.
"What we should instead take from this is that the global environment has changed," Forbes said Tuesday at the Brookings Institution, where monetary policy experts and former Fed officials gathered to discuss Powell's tenure, which ended last month.
"Central banks are no longer going to focus mainly on domestic demand shocks with the responses pretty clear," Forbes said. "Instead, we are living in a world where central banks are going to increasingly be forced to handle major, low probability events, often which are not economic or that emerge from abroad."
This outlook suggests that, like Powell, the new Fed chairman, Kevin Warsh, and his successors will face unprecedented external shocks. It is therefore important to learn from how Powell dealt with the unforeseen shocks of his tenure.
At Brookings, Fed experts laid out the top lessons to consider.
1. Aim of Monetary Policy Should Be Narrow
In the Powell era, the Fed attempted to craft policy and frameworks that looked beyond current economic conditions. Research published and presented by Brookings experts Tuesday contended that this approach wasn't successful.
Monetary policy in the U.S. is meant to create maximum unemployment and keep inflation at or below 2%. But at various points in Powell's tenure, monetary policy was being driven, in part, by a hope that it could produce a sustained hot labor market that would help address a range of inequalities over time, said David Romer, co-author of the research and nonresident senior fellow at Brookings.
"Those have been the times over the past eight years when monetary policy, in our view, has been least successful," Romer said.
Monetary policy under Powell was more successful when it was driven by more conventional frameworks that stressed a more limited view of what monetary policy can accomplish, Romer said.
Given the limitations of monetary policy, the Fed may also need to coordinate with other federal agencies in the years ahead.
"The level of coordination is likely going to have to go up over time, said Dan Ivascyn, group chief investment officer and managing director at PIMCO. He noted that is especially true as a growing federal debt level makes effective monetary policy much more challenging in the future.
Markets are "fine" with the Fed coordinating with other government officials, like the central bank did with the Treasury during the pandemic, he added. "It is undue influence that we are concerned with."
2. The Fed Needs to Move Fast and Aggressively When Merited
One of the biggest successes of the Powell Fed was the speed and determination that policymakers showed in providing the U.S. economy with a wide range of supports in the wake of the Covid-19 pandemic in 202o.
Glenn Hutchins, co-chair of the board of Brookings and co-founder of Silver Lake Partners, said that Powell's swift actions prevented disaster.
"Commercial paper, money markets, corporate credit, municipal finance, you name it, he addressed the whole ecosystem within days. That was not luck. That was judgment and resolve under extraordinary pressure," Hutchins said.
However, the Fed didn't react quickly enough to the 2021 inflation surge, when price growth peaked at nearly 9%, as measured by the consumer price index. Once policymakers realized inflation was out of control, they course-corrected and hiked interest rates rapidly.
The Powell Fed showed it isn't always okay to just wait and see, Forbes said. If the economic outlook is uncertain -- as it was in 2021 -- a Fed that decides to wait may then need to make up for it with a very fast series of hikes later on. Forbes calls that "the tortoise and hare approach."
She warned that strategy may not work in every circumstance, and there may be severe consequences to waiting.
3. Inflation Is Just Bad
The Fed should be cautious about allowing inflation growth to run above its 2% target, regardless of whether expectations for future price growth are anchored. Any inflation above target 2% is harmful for consumers and the broader economy -- and undermines Fed credibility.
Policymakers closely monitor inflation expectations because, generally speaking, what people think will happen to prices in the future influences wage and price-setting behavior. During the 2021 run-up on inflation, consumer and expert inflation expectations remained largely anchored. That helped the Fed justify waiting to hike interest rates.
The Powell Fed characterized the 2021 and 222 inflation surge as "transitory," contending the accelerating price growth trends were a short-term effect and would ease as supply chains normalized. But experts said Tuesday that hindsight showed the Fed responded too slowly to the rising inflation.
"Transitory was a mistake," said Ben Bernanke, former Fed chair and current Brookings fellow.
"When there is a period of high uncertainty, it might be better to say, we think that some of the factors affecting inflation may be temporary, but if they're not, here's what we're going to do," Bernanke said of the Fed's characterization of the 2021 and 2022 inflation.
4. Messaging Matters -- a Lot
Central bankers need to be more careful about their messaging on the economic outlook and how they're weighing policy decisions.
It's not that the Fed should never use forward guidance, but the central bank must "set a high bar for using it," Romer said.
Fed officials tend to talk too much. The central bank needs to think harder about issuing guidance on how it will move on rate policy. The best approach may be to minimize the "multiplicity" of conflicting voices and viewpoints coming out of the Fed, said Alan Blinder, former Fed vice chair and professor at Princeton University.
"Listen to the chairman," he said. "To the extent that the chair can get the get some message discipline on the rest of the committee, it's fine for them to talk."
The Fed may also need to maintain more flexibility in its forward guidance, such as using opt out clauses, according to Forbes. That includes guidance on asset purchases, she said. The central bank needs to have "easier ways" to wind down purchase programs, perhaps with clearer end dates.
However, Bernanke warned, if future Fed communications put too many opt outs in the forward guidance, it could lessen the strength of the central bank's commitment to a specific path.
5. Fed Independence Is Critical for a Strong Economy
The independence of the Federal Reserve is "critical to good economic performance," said Janet Yellen, former Fed chair and former Treasury secretary, and protecting it requires "ongoing effort" from people inside and outside the institution.
More than any other chair since Arthur Burns, who led the Fed under President Richard Nixon, Powell faced an extreme amount of pressure from the executive branch.
Across his two terms, President Donald Trump urged Powell to lower interest rates, publicly denounced the Fed's rate decisions, and verbally attacked the chair. Since taking office again last year, Trump upped the ante, calling for investigations into a wide range of actions by Powell, including his handling of the renovation of the central bank's headquarters in Washington, D.C.
Powell largely avoided commenting on the president's actions until the Department of Justice opened a criminal investigation into the remodel this year.
"The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president," Powell said in January.
Fifty years from now, Powell's stand against the president and against the erosion of Fed independence will be an integral part of his legacy, Blinder said. He praised Powell's avoidance of engaging in tit for tat with the president.
"It is hard for me to imagine a superior performance to that," Blinder said. "And I think that is what he will be remembered for."
Write to megan.leonhardt@barrons.com.
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 02, 2026 16:38 ET (20:38 GMT)
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