Chapter 1: What was Jerome Powell's initial plan after leaving the Fed?
Jerome Powell was supposed to retire quietly. The way our colleague Nick Timros tells it, Powell's life after eight years leading the Fed was supposed to be simple.
Friends will tell you the picture, golf, guitar, philanthropy, time with grandkids, maybe a memoir somewhere down the line. Everybody has their way relief stress, and Powell's is to play the guitar. Hank Williams ballads.
Less monetary policy, more Hank Williams. That was the exit plan. And tomorrow was set to be Powell's last day, as a newly confirmed Fed chair takes the reins.
From people I've talked to, he was genuinely looking forward to it. He was counting down the days.
but just weeks before that exit.
This is my last press conference as chair, and I will close with a few thoughts.
Powell had an announcement. He would step down as chair, but in a break from more than 75 years of Fed tradition, he would not leave the Fed.
After my term as chair ends on May 15, I will continue to serve as a governor for a period of time to be determined.
Almost immediately, critics pounced.
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Chapter 2: Why did Jerome Powell decide to stay on the Fed Board?
The pandemic hits and the Fed was thrust into this role as a first responder.
Our job is to meet the tests we are presented.
Lawmakers backed Powell as the Fed slashed interest rates to zero and pumped money into the financial system. The Fed started lending directly to mid-sized businesses and bought corporate debt, things the central bank hadn't done before.
Our emergency measures are reserved for truly rare circumstances such as those we face today.
A lot of people in markets will tell you that was really the high point of the Powell Fed. He was widely credited with not just saving the economy, but avoiding much worse outcomes.
For a moment, Powell was widely praised, including by Trump.
I've been critical, but in many ways I call him my MIP. Do you know what an MIP is? Most Improved Player.
After President Joe Biden won the White House, he reappointed Powell in 2021. But the damage from the pandemic wasn't over. Supply chains were snarled. People still wanted stuff, but there was less stuff to buy, which led to higher prices. And when the Fed saw this inflation, Nick says, it made a big miscalculation. It kept rates too low for too long.
2021 is where the mistakes start to compound. The Fed keeps saying this is transitory. Remember, inflation being transitory.
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Chapter 3: What criticisms did Powell face for not stepping down?
And by the end of 2021, they realize they've gotten it wrong.
And what was the course correction?
They raise rates rapidly. Fastest increases in four decades.
The Fed is expecting to raise interest rates three times in 2022.
Raising its benchmark interest rate for the fifth time this year. It was the 11th rate hike in the last 12 meetings. These aggressive measures helped bring inflation down, but they came at a cost. Borrowing got more expensive for mortgages, car loans, and credit cards. And the Fed's misread would have political fallout.
It made the institution more vulnerable. It left the Fed politically exposed. Politically exposed. What do you mean by that? Inflation is the job of the Fed. And so if you've had a big inflation problem, it's fair to say, well, what's the central bank doing?
Mm-hmm. Over the next few years, the Fed kept trying to catch up. It raised interest rates again and again, sometimes by unusually large jumps. Eventually, inflation started to cool. And by the fall of 2024, the Fed finally started cutting rates.
But the timing of those rate cuts angered Republicans, who accused the Fed of making the Biden administration look good just before the presidential election.
And so Trump comes back to office in 2025. He is not happy with Powell from his first term. Then he picks up where he left off. But then in 2025, takes it to a completely different register. The first move is going after Powell directly. The president threatens to fire Powell. When that doesn't work, he then goes after other people on the board.
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