Federal Reserve Chair Jerome Powell’s Legacy

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1:44Policies provided by Hartford Fire Insurance Company and its property and casualty affiliates, Hartford, Connecticut. Bloomberg Audio Studios. Podcasts. Radio. News. Today marks the start of Jerome Powell's final week as chair of the Federal Reserve. He's led the Fed for more than eight years, and it's been quite a run. He really is the first to have to test these limits that have been imposed on the Fed. by convention. I don't want to say legally. It's more a conventional thing, right? Katerina Sariva covers the Fed for Bloomberg. She's tracked every twist and turn in Powell's career, particularly when it comes to his relationship with President Trump, who nominated Powell to be the 16th chair of the Fed in 2017.

2:31He's strong. He's committed. He's smart. But Trump had a change of heart pretty early on. Here he is just two years later. Do I want him to resign? Let me put it this way. If he did, I wouldn't stop him. In the time since, Trump has become increasingly critical of Powell, ramping up his attacks on the chair and threatening the central bank's ability to set rates without government pressure or interference. That conflict has become a hallmark of Powell's tenure. If not for this question of Fed independence, probably what we would have spent most of this conversation talking about is the pandemic response.

3:06That's Amara Omokwe, another Bloomberg reporter who covers the Fed. The forceful way that the Fed responded to try to keep the U.S. economy from experiencing the worst outcomes and then how it responded to inflation and the big miss. Amira and Katerina have spent the last few months looking back on Powell's time at the Fed, first as a governor under President Obama, and then as chair under Presidents Biden and Trump. They've taken stock of Powell's successes and missteps and looked at what his legacy is likely to be.

3:42I'm David Gurra, and this is The Big Take from Bloomberg News. Today on the show, two Bloomberg reporters reflect on Jerome Powell's tenure at the Federal Reserve, how he's resisted President Trump's attacks on him and the Fed, and how the policies he's championed have shaped the economy.

4:02So I want to roll back the clock to when Jerome Powell joined the Fed. He was appointed to serve on the board of governors of the Fed in 2012 by President Obama, selected by President Trump for the chair position in 2017. He is somebody who went to law school. He's not a Ph.D. economist. And I remember that being kind of a big deal when he was appointed for the job. Katerina, tell me more about Powell's background prior to joining the Fed and how he got the chair position. I think it's perhaps unusual in this modern day where we've seen a lot of Fed chairs have kind of that traditional Ph.D. in economics background, but not unusual when you go back a bit further than that in history.

4:42Powell worked at the Treasury Department during the first Bush administration. He was in private equity in the 90s, kind of famously at Carlyle, one of the big private equity companies doing, you know, leveraged buyout deals. And then in the 2000s, he was kind of feeling like he wanted to go back into public service. And he was working at a think tank in D.C. He was doing a lot of work on behalf of the Obama administration in Congress, explaining to elected officials what it would mean to default on the debt and why this is something, you know, the U.S. should avoid at all costs. And that caught the eye of President Obama.

5:26When the Obama administration was looking to appoint a couple new people to Fed governor positions, this was at a time when these appointments still usually tended to come in a bipartisan way. So President Obama was looking for a Republican to appoint alongside his Democrat selection. And he found Powell. Amira, what was it about Jay Powell that appealed to President Trump when he was deciding who to nominate to be Fed chair? Well, he was looking for a Republican, obviously. And I think also Jay Powell at the time had the recommendation of key people in the Trump administration, notably the Treasury Secretary at the time, Stephen Mnuchin.

6:04And in Chair Powell's days as a governor, I think he really impressed his colleagues because he wasn't an economist, but he kind of developed this reputation for really working hard to understand the economics, to understand monetary theory, reading textbooks, talking to colleagues, really trying to make sure that he understood what he was doing and really grasping some of these concepts that he had to deal with as a governor and later chair. Amira, when did the relationship between Powell and Trump start to sour? There really wasn't much of a honeymoon period for Jay Powell as Fed chair. He became Fed chair in 2018.

6:41And that year, he led the Fed to hike rates a couple of times. And as we know, President Trump generally favors lower rates. And so we started to see President Trump push back on those rate cuts publicly, which is unusual for a president, right? And that was just a harbinger of things to come. But yeah, Chair Powell really has been experiencing this tension and these criticisms from President Trump since pretty much early on in his chair tenure. Kat, we're going to get into the way that that tension has continued to build. But take us back to maybe the first or the second time the president criticized what the Fed did or Jay Powell did and just remind us how that reverberated across Wall Street and among economists, seeing that level of pushback from the president.

7:27He took to social media back then, Twitter being the preferred platform, and started criticizing Chair Powell for presiding over these interest rate increases. These were very much expected. They had telegraphed that they would do this. They had already been increasing interest rates. So this wasn't really surprising to markets. But when the criticism from the president started, that was a huge surprise. Sure, Fed chairs have been criticized by elected officials, but it tends to happen in private. Amira, let me ask you about the economy we had when Jay Powell started as a Fed governor back during the Obama administration.

8:08What did it look like and what were the Fed's priorities at that time when Jay Powell started? The U.S. economy was still recovering from the financial crisis of 2008 and 2009. And the Fed's main concern at that time was actually how sluggish the recovery was. how long it was taking for employment to bounce back, how long it was taking for consumer demand to bounce back. And really, one of the main concerns was that inflation was too low. So for much of the period following the financial crisis, the Fed basically had rates at zero, near zero. And the concern was that we really weren't seeing much inflation, which in some respects can also be a problem.

8:49What was interesting was as the decade kind of closed out, we started to see the fact that the labor market actually started to improve. We started to see groups that tend to be marginalized in the labor market actually start to see gains. And it felt like, OK, the economy is finally turning a corner from this pretty much a decade of this sluggish recovery that we were seeing. And at the same time, we still weren't seeing much inflation. And so the Fed started to really think about this idea that, OK, unlike traditional economic theory would would reason that a labor market that has momentum would lead to inflation.

9:27Maybe there is a world in which we can have a good labor market and we don't necessarily see inflationary pressures. For Chair Powell, I think one of the big lessons from the 08 response, which of course was under then-Chair Ben Bernanke, was that there probably wasn't enough of a fiscal response at that point. And that's why you saw such a dragged out recovery from that. And there was kind of broad consensus in Washington at that point that they wanted to avoid that again. And so you saw the chair be pretty forceful in his calls for a big and aggressive fiscal response to the pandemic. Katarina, let's talk more about the pandemic and the way that it was such a huge trial for Fed Chair Jerome Powell.

10:12How did Powell approach policymaking during the early days of the COVID-19 pandemic? I think it's fair to say that they came to it with guns blazing. I think the lesson from the 2008 response were that you really need to confront these things quickly and aggressively. And that is what the Fed did. It quickly lowered interest rates, getting them to zero by about mid-March. And it unleashed a slew of special facilities. These are emergency lending facilities because the central bank is, of course, the lender of last resort. This is one of its primary functions. And that's what it did at the onset of the COVID pandemic.

10:53Amira, the Fed's decision to keep interest rates low as the economy began to emerge from the pandemic is now widely seen as a misstep. Jay Powell has acknowledged as much. But back then, the term we kept hearing so much was that inflation was transitory. As these transitory supply effects abate, note that a transitory rise in inflation, only transitory effects on inflation. Take me back to that time and explain the consequences of the Fed failing to recognize the fact that inflation was not transitory, that it was more ingrained than policymakers thought. Chair Powell and the Fed really leaned into this idea that because the inflation at the time was thought to be caused by supply shocks, that it was not something that monetary policy necessarily needs to respond to.

11:36Right. This is traditional economic theory. Supply shocks tend to move through in time. and really the Fed's main tool, its interest rate, is more effective on demand. It works on demand. And we saw from most of 2021 that that's what Chair Powell was basically saying. Like, we expect this to be transitory. This is not something that monetary policy should respond to. By the fall of 2021, when it was becoming clear that that was not the case, you start to see the Fed kind of shift. And actually, Chair Powell, by that fall, was saying, OK, maybe it's time that we retire this transitory word. I mean, it's become a word that's attracted a lot of attention that maybe is distracting from our message, which we want to be as clear as possible.

12:16And I think the fact that the Fed is widely seen as having been late to raise interest rates because they didn't start hiking interest rates until March of 2022. That has had a lot of implications. Right. It weighs on the Fed's credibility. Right. We rely on the central bank to help control inflation. And they got that one wrong. Admittedly, they got that one wrong. And so it has been a ding on their credibility. I think also Americans, as we know, are really concerned about affordability. Inflation has been above target for five years now, basically. And we saw how big of a role the question of affordability and prices played in our politics.

12:54This was a big reason why President Trump was able to win the 2024 election, because Americans do remain so concerned with how prices have risen and inflation. And now when you think about what the Fed is dealing with, which is additional supply shocks that have come as a result of this year, the U.S. war in Iran. Last year, the imposition of sweeping tariffs by President Trump. You see Fed policymakers being hesitant to say these rolling shocks are things that we can just look through. And I think that's in part because of the legacy of the pandemic. They got that wrong and they don't want to assume that inflation is going to be transitory again.

13:34Coming up, Trump 2.0, why the president renewed his criticism of Jerome Powell and targeted another governor, and how these attacks affected the independence of the Federal Reserve.

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16:36When President Trump's reelected in 2024, he pretty quickly intensifies his threats on Jay Powell and the Fed. Amira, tell me a bit about that, sort of how he ratcheted it up once he was reelected. Oh, how didn't he? It's been really remarkable to watch over the last year. So he either is incompetent or he's crooked. He's too late, always too late, a little slow. We just saw President Trump continue on social media to just really, really berate Jerome Powell, basically framing him as detrimental to the American public. But then, you know, in the spring and towards the middle of last year, things really started to escalate.

17:15We at Bloomberg and others reported that President Trump was close to firing Chair Powell or was considering trying to fire Chair Powell. And then we saw the president and his allies really start to focus in on this two and a half billion dollar renovation that the Fed is doing of its headquarters here in D.C. and Chair Powell went before the Senate Banking Committee and talked about that renovation and was pressed by lawmakers about why its costs have increased over the last couple of years. And President Trump and his allies seized on that testimony to ramp up scrutiny of this renovation project.

17:54And some of President Trump's allies also began to suggest that Chair Powell had lied during that testimony and that that could rise to the legal cause that President Trump would need to fire him. And we know now that the Department of Justice opened a criminal investigation at the end of last year and then actually issued subpoenas to the Fed early this year. And those subpoenas really, I think, flipped Chair Powell into a resistance mode that we hadn't seen from him prior. This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions, or whether instead monetary policy will be directed by political pressure or intimidation.

18:36He got on video and he said, I'm basically not going to allow President Trump to bully me. If you've listened and followed Jay Powell for all these years, he just, you could tell he just never really wanted to go there. But these subpoenas were just so extraordinary that he kind of felt like he had to, to lay out this really forceful defense of Fed independence. So that's one side of it. And then all in the backdrop, we also have the case of Fed Governor Lisa Cook, who President Trump has actually tried to fire. So no president has ever before tried to fire a Fed governor. And so I think both of these cases really have huge implications for Fed independence.

19:16The DOJ has now dropped this investigation of Chair Powell to clear the way for his successor to be confirmed by the Senate. But Chair Powell is still watching that situation closely because the DOJ has also kind of left it open as to whether or not they might reopen it. So how both these situations resolve will have big implications for whether the Fed is still viewed as an institution with a high amount of independence or whether President Trump has succeeded in pulling back some of that independence. Kat, Jay Powell is going to stick around as a governor for a time to be determined as all of this continues to unfold.

19:55I'm curious sort of how you see this playing out in practice. How would a governor, former chair Jay Powell, continuing to be on the board, play a role in shaping what the Federal Reserve does in the months ahead? Yeah, I think that's kind of the million dollar question. How is this going to work? The last time we saw this was in the late 40s, early 50s when a chair stayed on. That's the only other time this has happened. So we don't really have a playbook for this. Chair Powell has said that he will be largely out of the limelight. He is not trying to be any sort of shadow chair. He's not trying to play a leadership role behind the scenes.

20:35But I think whether that is what actually happens remains to be seen because this is an individual that has immense support among his colleagues, right? We have heard many times this year from most of his colleagues how much they like working with him, how much they respect him. He really has done that through cultivating this culture of consensus building. That is how they have reached their decisions under him. And, you know, other Fed chairs kind of did the same thing. And you now have a Fed chair coming in and Kevin Warsh that is coming in being very critical of how the Fed does a lot of things.

21:14You know, some on the outside wonder if that is having some sort of an impact already on current Fed officials. You know, are they less likely to listen to him? Are they less likely to go along with what he wants to do because of that criticism? I mean, maybe the answer to that is no. And we've heard many Fed officials say that they're coming to this open-minded. But, you know, I think just the fact that Powell has so much clout among the other Fed officials makes it easy to imagine a situation where if there is a lot of controversy or a lot of disappointment or anger about the new leadership, that they might kind of gravitate toward the old boss.

21:57And David, I just want to point out that this awkward, weird situation that Kevin Warsh as the new chair is walking into is completely the creation of the Trump administration, right? Based on our reporting, like Chair Powell was fully prepared to leave. This is a man in his 70s. He's been at the Fed a long time. He has a family. He's dealt with so many crises over the last couple of years. Like he was ready to just ride off into the sunset and say goodbye. But now he really feels like I have to stay here and make sure that things don't go off the rails. And it is the Trump administration that created the backdrop that has made him feel like he has no choice but to stay here and defend the institution.

22:40Yeah. And I think also like the worth noting is the global implications of the Fed's ability to conduct monetary policy free from political pressure. You have literally the eyes of central banks and governments all over the world on the U.S. right now. I think there's a lot of nervousness about what it could mean if the world's most powerful central bank has to cede some of its independence. And you're also seeing some of these machinations at work in countries like Colombia, where you're seeing a lot of interference into the central bank and the central bank really fighting as well there to keep its independence.

23:18So it's a theme that has repercussions that extend far beyond the U.S. as well. At the press conference that followed Jerome Powell's last Fed meeting as chair, he got a number of questions about his legacy. What did he think his legacy was? How's he thinking about his tenure at the Fed? He really batted those down. He gave out his famous mulligans to reporters who asked about that. How are you thinking about his legacy at this moment where his time at the Fed isn't done yet, but he has moved on or is readying to move on from being Fed chair? One of the people we spoke to as we were writing this story said, you know, Fed chairs are usually judged in history by their performance on inflation.

24:01And if you judge Chair Powell on inflation, you could argue that he hasn't done the best, right? They had the transitory situation. He's leaving the chair position with inflation still above target. It will never return back to 2 percent on his watch. And so that's an important part of his legacy. But I think that because he is now viewed as this person who has stood up to President Trump and taken extraordinary steps to defend Fed independence and to make it clear to the American people how important Fed independence is, I think that is arguably going to be how he is most remembered.

24:45This is The Big Take from Bloomberg News. I'm David Gurra. The show is hosted by me, Wan Ha, and Sarah Holder. The show is made by Aaron Edwards, David Fox, Eleanor Harrison Dengate, Patty Hirsch, Rachel Lewis-Kriskie, Naomi Ng, Julia Press, Tracy Samuelson, Naomi Chavin, Alex Segura, Julia Weaver, Yang Yang, and Taka Yasuzawa. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. Thanks for listening. We'll be back on Monday.