WASHINGTON—“I won’t see you next time.” With those words, Jerome Powell ended his likely final press conference as Federal Reserve chair on Wednesday, after presiding over his final Federal Open Market Committee meeting. Having served as chair for just over eight years, his term will end on May 15.
Though Powell’s last year on the job was marked by turbulence—from his public spat with US President Donald Trump to a Justice Department investigation into alleged building cost overruns (that has been dropped)—he will leave behind a notable legacy that includes both major achievements and shortcomings.
Powell’s track record and experiences in dealing with inflation, promoting maximum employment, supporting financial stability, and defending the Fed’s independence can serve as lessons for his successors.
From crisis to comeback
In response to the COVID-19 pandemic, Powell’s Fed sprang into action with a sweeping series of measures to ensure price stability and promote maximum employment—demonstrating an unwavering commitment to its dual mandate.
In coordination with the Treasury launching a record-breaking stimulus package worth 25 percent of gross domestic product, the Fed raised its balance sheet from roughly $4 trillion in 2019 to $9 trillion in early 2022 while cutting interest rates to near zero. And these moves paid off. Thanks to the combined fiscal and monetary policy measures, the COVID-triggered recession turned out to be the shortest on record—lasting for just two months—and the United States recovered faster than any other Group of Ten nation. The US unemployment rate rose from 3.7 percent in 2019 to 8 percent during the recession in 2020, then fell sharply to 3.6 percent in 2022—and has hovered between 3.5 percent and 4.3 percent since.
A costly inflation miscalculation
On the heels of this success, however, Powell and the Fed made a serious mistake by maintaining their accommodative monetary policy for too long. Misinterpreting signs of accelerating inflation in 2021 as “transitory,” the Fed allowed inflation to rise significantly, peaking at 9.1 percent in June 2022. As a result, the central bank had to raise interest rates aggressively from near-zero to between 4.25 and 4.5 percent by the end of 2022 and implement quantitative tightening to shrink its massive balance sheet.
At the root of that policy mistake was Powell’s introduction of the Fed’s new monetary policy framework—flexible average inflation targeting (FAIT)—in 2020. Under this approach, the Fed would tolerate inflation moderately above its 2 percent target for some time, following spells of lower inflation. This strategy pays much attention to past inflation performance—a period of low inflation would bias policy decisions toward accommodation.
More importantly, FAIT proved ill-suited to navigating a series of global supply chain disruptions—including the fallout of the COVID-19 pandemic—which drove up the costs of doing business. Ultimately, the Fed was forced to abandon FAIT and get back to its traditional inflation-targeting approach, a prime example of closing the stable door after the horse had bolted.
The SVB wake-up call
But even as the aftermath of the pandemic and inflation concerns dominated the Fed’s attention, they were not the only sources of pressure on Powell. In 2023, the Silicon Valley Bank (SVB) collapse forced the Fed to launch an emergency liquidity facility—the Bank Term Funding Program—to prevent a regional crisis from spiraling into a systemic one.
In its subsequent review of SVB’s supervision and regulation, the Fed emphasized that while the bank’s board of directors and management failed to manage risks, supervisors did not fully appreciate the extent of its vulnerabilities as the bank grew in size and complexity. When vulnerabilities to interest rate and liquidity risk were identified, supervisors did not move in a timely manner to ensure that they were addressed.
The SVB collapse and the regional banking crisis that ensued highlighted the important role of supervision, not just regulation, in sustaining financial stability—and especially the role of senior leadership at the Fed and other financial regulators in encouraging and enabling front-line banking supervisors to perform their duties diligently.
Power, pressure, and principle
Beyond navigating national and global crises, however, Powell’s tenure was defined by his firm defense of Fed independence against executive overreach. Shrugging off Trump’s pressure campaign to lower interest rates not only earned the central banker broad public support—it also set a high bar for his successor in managing the perennial tension between the president’s demands and the Fed’s dual mandate.
While close observers of the Fed will hardly forget the historic inflation surge, the policy missteps that preceded it, or the strains exposed in bank supervision during his tenure, Powell’s refusal to yield on central bank independence may ultimately stand out most in public memory.