Economy
Powell’s tenure as Fed chair marked by inflation battle, independence tests
Eight years ago, when Jerome Powell became Chair of the Federal Reserve (Fed), economists worried that inflation and interest rates were too low and not enough Americans were employed.
Now, as Powell steps down from the post after eight tumultuous years, the U.S. economy is transformed: Inflation soared after the COVID-19 pandemic and has remained above the Fed’s 2% target for more than five years, angering voters and making rents, cars, and groceries harder to afford.
The Fed’s key short-term rate rose to a two-decade high in 2023, even as unemployment fell to a half-century low.
Along the way, Powell shrugged off relentless personal attacks from President Donald Trump that began just months after his appointment. But in January, he pushed back against an unprecedented legal investigation by the Justice Department, becoming one of the few top officials in Washington to stand up to the Trump White House.
Powell, who was named chair pro tempore on Friday until his successor Kevin Warsh is sworn in, said he will continue serving on the governing board until he is confident the Fed’s independence is truly restored. His success at protecting the central bank from day-to-day politics will be a key part of his legacy.
“It is not an unblemished record, but in an extremely challenging context, he’s performed exceedingly well,” said David Wilcox, a senior fellow at the Peterson Institute for International Economics and director of research at Bloomberg Economics.
“And my overall assessment is that the country has been lucky indeed to have him as chair.”
Unlike many of his predecessors, Powell, 73, is not a trained economist, but a lawyer who also worked in finance before joining the Fed’s board of governors in 2012. Unassuming in public and private, Powell often introduces himself as “Jay” and would display his guitar-playing skills, honed as a student busking through Europe, at the Fed’s holiday parties.
An inescapable part of Powell’s legacy will be the post-pandemic inflation surge, when consumer prices rose by a four-decade high of 9.1% in June 2022.
Overall prices are now 27% higher than just before the pandemic six years ago, a staggering change for a country that had experienced little inflation for generations. Prices rose just 10% in the six years before the pandemic. Groceries are 30% more expensive than six years ago, after they rose just 3.6% in the six years preceding the COVID-19 pandemic.
‘Transitory’ inflation legacy
Powell and other Fed officials, and indeed most economists, initially said the inflationary surge was “transitory,” a result of supply chain snarls brought about by the pandemic, as COVID shut down factories and slowed ports around the world.
Their immediate priority was supporting the economy in a crisis.
In two moves in March 2020, they slashed their benchmark interest rate by 1.5 percentage points to near zero. The Fed also bought large amounts of Treasury debt and government-backed mortgage securities to reduce longer-term interest rates and took other steps to pour money into the financial system to keep credit markets functioning during pandemic chaos.
In April 2020, Powell said that the Fed would “continue to use these powers forcefully, proactively, and aggressively until we are confident that we are solidly on the road to recovery.”
Even as inflation zoomed past the Fed’s 2% target in 2021, the central bank kept its key interest rate near zero until March 2022, when inflation hit 6.9%, according to the Fed’s preferred measure.
The Fed’s delay in raising rates was largely informed by a traditional economic view that inflation, stemming from a supply shock, would be temporary and if a central bank cranked up borrowing costs to fight it, the higher rates would just harm the economy and lift unemployment even as the supply crunch faded.
Meanwhile, the Trump and Biden administrations pumped about $5 trillion in government spending into the economy, in the form of multiple stimulus checks, support for small businesses, and other aid. The flow of dollars fueled a spending spike just as supply chains were unable to deliver on the demand.
By keeping its key rate near zero for so long, Powell’s critics charge, the Fed contributed to that excess spending and worsened inflation.
“Even though there was all the evidence there in the data that aggregate demand was going through the roof, they still said it was a transitory supply shock,” said Mickey Levy, a former top economist at Bank of America and a visiting fellow at the Hoover Institution. “The Fed contributed to that inflation and completely misread the tea leaves.”
As inflation began to spread into items such as apartment rents and surveys showed Americans increasingly worried it would last, Powell pivoted and oversaw the sharpest increase in interest rates since the early 1980s to combat the price spike.
Still, many leading economists, including former Treasury Secretary Larry Summers, worried that defeating inflation would require a recession and a sharp increase in unemployment. Instead, inflation dropped to 2.3% by September 2024, according to the Fed’s preferred measure, nearly reaching its 2% target.
By reducing inflation without a sharp economic downturn, Powell largely achieved an elusive “soft landing.” Inflation then moved higher after Trump imposed sweeping tariffs last April.
Fighting inflation was a sharp shift for a Fed chair that began his term more focused on the Fed’s mandate to pursue maximum employment. Before the pandemic, Powell often lauded the benefits of a strong job market for disadvantaged workers, winning plaudits from many progressive economists.
Yet some economists argue the Fed’s focus on employment contributed to its delayed response to post-COVID inflation. In an August 2021 speech, Powell said the then-elevated unemployment rate of 5.4% was a reason to avoid hiking rates too early.
Still, many analysts defend Powell’s support for the maximum employment mandate. Julia Coronado, president of MacroPolicy Perspectives and a former Fed economist, said Powell was right to keep rates low before the pandemic, even as unemployment steadily declined, because there were no signs inflation was worsening.
“If you can actually push a little harder for a little longer with no consequences for inflation, then you should damn well do it,” she said. “He was absolutely right about that. He’s still right about that.”
For his part, Powell said in late April that “overweighting the employment market” had nothing to do with the inflation spike.
“It was a global shock that happened essentially very, very similarly all over the world,” he said.
Trump dispute
Last July, in an image that will likely prove the most enduring of his time as Fed chair, Powell and Trump stood before cameras in hard hats at the site of the Fed’s extensive $2.5 billion building renovation, which Trump had criticized as excessive.
Trump claimed the project would cost even more, about $3.1 billion, and showed Powell a paper listing the costs. Powell took out his reading glasses and corrected the president, on camera, by noting that he had included a third building that had already been renovated.
It was emblematic of Powell’s willingness to push back against Trump’s unprecedented attacks. Economists have long supported an independent Fed because it allows the central bank to take difficult steps, such as sharply raising interest rates to combat inflation, which politicians often oppose because they can be painful.
Powell benefited from a strong relationship-building with Congress. Research by University of Maryland economist Thomas Drechsel has found that Powell met with senators more than twice as often as his two predecessors, with the meetings evenly split between both parties.
During one visit, Powell even endeared himself to North Carolina Republican Sen. Thom Tillis’ dog, a move that paid huge dividends. Tillis essentially blocked Senate approval of Kevin Warsh, Trump’s pick to replace Powell, until the investigation of the building project was dropped. The Justice Department eventually gave up on its probe.
Even those who fault Powell on some policy decisions credit him for defending the Fed.
“The big plus is the way he has protected central bank independence,” said Don Kohn, a former vice chair of the Fed. “That is the most important thing for the future of the Federal Reserve and for protecting the public interest in having an independent central bank.”
Powell hasn’t said when he may leave the Fed, though he could remain on the governing board until January 2028.
“You want people to … set interest rates to benefit the general public,” Powell said at his last news conference, “and focus only on that and ignore political considerations. This isn’t bipartisan, this is nonpartisan.”
Some of the world’s most prominent central bankers will attend the Istanbul Economic Forum this week to discuss inflation, monetary policy and the global economic outlook, the forum’s website said.
U.S. Federal Reserve (Fed) Governor Christopher Waller, Bank of England (BoE) Governor Andrew Bailey, Bank for International Settlements (BIS) General Manager Pablo Hernandez de Cos and Banque de France Governor Emmanuel Moulin are among those due to attend the two-day forum on Thursday and Friday.
Other expected attendees include the central bank governors of Greece, the Netherlands, Hungary, Saudi Arabia, Malaysia, Azerbaijan and Kazakhstan, according to the website compiled by the Central Bank of the Republic of Türkiye (CBRT).
In total, 16 central bank governors and eight deputy governors, as well as the finance ministers of Türkiye and Egypt and officials of international financial institutions, are scheduled to join the meeting.
The forum said participants will discuss topics including navigating a fragmenting global economy, monetary policy under uncertainty, debt dynamics, and the implications of artificial intelligence and digital innovation for macroeconomic policy.
The Federal Reserve website included Waller’s planned speech at the conference on its schedule for Thursday.
Türkiye plans to transform the Development Road project into a multi-billion-dollar link carrying oil, natural gas and electricity from Iraq and the Gulf to Europe, according to Energy and Natural Resources Minister Alparslan Bayraktar.
Bayraktar, who met with Iraqi Oil Minister Basim Mohammed Khudair in Ankara on Friday, said Türkiye aims to turn the Development Road into a strategic “energy corridor.”
Unveiled in May 2023, the project is a $20 billion regional infrastructure initiative designed to facilitate the transport of goods from the Gulf to Europe via the Grand Faw Port in Basra in southern Iraq. The port would be linked to Türkiye and subsequently to Europe through an extensive network of railways and highways.
In April 2024, Türkiye, Iraq, the UAE and Qatar signed a memorandum of understanding (MoU) for joint cooperation on the project.
Bayraktar said oil and natural gas transported along the route could alone generate an annual economic value of around $80 billion if the project’s energy infrastructure is developed alongside its transportation network.
“We are determined to build the Development Road as a strategic ‘energy corridor,'” he told Anadolu Agency (AA), noting that developing the energy infrastructure alongside the route will greatly boost its economic value.
Bayraktar said Iraq’s oil resources offered significant potential for the project’s energy dimension and that the route could eventually carry up to 2.5 million barrels of oil per day (bpd).
Iraq currently produces around 4 million bpd, while Kuwait has a production capacity of around 2 million bpd.
Qatari gas could be transported through Iraq
Bayraktar said the Development Road also had significant potential for natural gas transportation, particularly by providing an alternative route for Qatar’s gas exports to Europe.
Qatar, one of the world’s largest gas exporters, currently ships most of its gas as liquefied natural gas (LNG).
Bayraktar said Qatar’s LNG exports rely heavily on the Strait of Hormuz and that transforming the Development Road could provide an alternative route for some of the country’s gas.
He said the initiative could therefore evolve from a project aimed at strengthening trade and transportation links between Iraq and Türkiye into a multidimensional corridor encompassing oil, natural gas and electricity infrastructure.
Ceyhan could become global energy hub
Bayraktar said alternative routes to the Strait of Hormuz had become increasingly important at a time when energy security and supply diversification were gaining greater significance.
Extending the Kirkuk-Ceyhan pipeline, the current infrastructure connecting Iraqi oil to Türkiye’s Mediterranean export terminal at Ceyhan, to Basra and increasing its capacity could provide a strong alternative to the Gulf region and the Strait of Hormuz for oil transportation, Bayraktar stated.
Türkiye also aims for its state-owned Turkish Petroleum Corporation (TPAO) to play a more active role not only in the Kirkuk fields but also in other oil fields in Iraq, Bayraktar said.
“We will continue to strongly pursue concrete projects in close cooperation with the new Iraqi government,” he said.
“We aim to reach the target of supplying 1 million barrels of crude oil, increase trade and turn Ceyhan into a global energy hub,” Bayraktar said.
President Recep Tayyip Erdoğan said Monday that Türkiye had never allowed itself to fall behind in the space race, stressing that space should not be the preserve of a handful of powerful nations.
“The space race cannot be a competition between just a few countries,” Erdoğan told the International Astronautical Congress in the southern city of Antalya.
It is the first time Türkiye is hosting the event that brings together scientists and delegates from 111 countries.
Erdoğan set out what he called Türkiye’s principle on space: that it should not be treated as a prize for whoever gets there first.
“Militarizing space and turning it into a vehicle for an arms race would be utterly wrong,” he noted.
Erdoğan said Türkiye is now one of the few countries able to design, develop, build, test and operate its own satellites in orbit.
He pointed to the IMECE satellite, which he said gave Türkiye an important high-resolution Earth observation capability, and to the Göktürk satellites, which he said had expanded its ability to observe and survey from space.
Türkiye has also launched the Türksat 5A and 5B communications satellites. In 2024, it launched and put into service Türksat 6A, its first domestically designed and built communications satellite.
Erdoğan said that satellite had confirmed the country’s engineering capability, industrial base, human resources and confidence in space technology.
Space, he said, is not only about satellites.
In 2024, Türkiye sent Alper Gezeravcı to the International Space Station on the country’s first crewed space mission.
A suborbital research flight by Tuva Cihangir Atasever followed, giving Türkiye experience in microgravity research.
Erdoğan called these steps meaningful but not sufficient, and said Türkiye was pursuing bigger goals.
Moon program
Erdoğan said one of the most ambitious goals of the National Space Program, announced in 2021, is a mission to the Moon.
He said Türkiye had set that goal five years ago and had since turned it into a concrete program.
“We have completed the production, assembly, and integration of the lunar rover we developed as part of our Moon Research Program,” Erdoğan said. He said the spacecraft was now undergoing system-level environmental tests.
The vehicle weighs about 3.5 metric tons and has a domestic content rate of more than 80%, which he called a source of great pride.
He added that experience gained on projects such as IMECE and Türksat 6A was being carried over to the lunar mission, so that Türkiye did not have to start from scratch each time.
Spaceport in Somalia
Erdoğan said that having satellites was not enough to be a space power and that access to space was also essential.
He said Türkiye had given priority to launch access and a spaceport in its space program and had begun construction of a spaceport in Somalia. He said the project would strengthen Türkiye’s access to space and help develop the space ecosystem of the African continent.
The euro plunged to its lowest level against the dollar in 17 months on Monday amid growing concerns about France’s high debt and deficits and political future, which have sent its government bond yields higher.
An underwhelming 2027 budget plan unveiled last week fanned concerns that government spending will remain high ahead of next year’s presidential elections, in which the far-right Marine Le Pen, seen as a fiscal populist, stands a chance of winning.
That has rattled bond investors at a time when interest rates – and hence borrowing costs – are rising in developed economies worldwide to combat inflation.
French debt is projected to rise to nearly 122% of the country’s gross domestic product (GDP) next year, despite billions of euros in planned spending cuts.
That has sent its 10-year government bond yield to 4.8%, the highest since the 2011 eurozone bond crisis.
“The fact that French bonds and the euro sold off last week, and the downward momentum could persist this week, is a sign that Europe is out of favor with investors and bond market vigilantes are watching developments in the eurozone closely,” said Kathleen Brooks, research director at XTB.
A call for snap elections in Spain by Prime Minister Pedro Sanchez also surprised investors, after lawmakers rejected a hotly debated housing relief bill from his Socialist-led minority government.
“France had already been under pressure due to questions over fiscal credibility and political stability,” said Patrick Munnelly, market strategist at Tickmill Group.
“Spain now adds another layer of uncertainty,” he added. “Europe’s political risk is weighing on the euro.”
Stocks, meanwhile, were broadly higher, with the Nasdaq opening higher after hitting another all-time high on Friday in the wake of weak U.S. jobs data, and the broader Dow also still near record territory.
That tempered expectations of an imminent rate hike by the Federal Reserve (Fed), and fueled optimism on Asian and European equity markets that the AI-fuelled rally still has room to run.
Paris was dragged lower, however, by Schneider Electric after the industry group unveiled a $22.6 billion all-cash deal to buy the U.S. engineering software specialist PTC, which pulled its share price down nearly 10%.
Lower oil prices provided additional support, after G-7 countries, in coordination with the International Energy Agency (IEA), agreed on Friday to immediately release 100 million barrels of diesel and crude oil to ease supply concerns caused by the U.S.-Iran war.
Exports of Middle East oil, excluding Iran, surpassed their pre-war levels last week despite attacks on ships in the Strait of Hormuz, according to data from the maritime tracking firm Kpler.
But Saudi Aramco chief executive Amin Nasser on Monday described oil stockpiles as “scarily thin” as the European winter looms.
France and Germany are seeking a new rapid-response trade tool that the European Union would use to position itself better against countries that harm the bloc economically in a new world where trade is increasingly used as a weapon.
German officials said the EU needed a tool as powerful as the Section 301 tariffs imposed by the U.S. or China’s restrictions on exports of critical minerals.
The new measure would not target any specific country, but highlights dumping, widespread subsidies and restriction of currency convertibility – market distortions that many EU leaders say China is engaged in.
A French-German document published on Monday, 10 days before EU leaders discuss Chinese trade imbalances at a summit in Brussels, said “systemic and persistent market distortions” jeopardize the European economy and particularly its industrial base, with widespread job losses.
The bloc, said the document, needs to deploy its trade defense tools more swiftly and efficiently, with more investigations and a broader approach to cover whole sectors.
France and Germany also said the European Commission should propose two new instruments as soon as possible to focus EU efforts on diversification and securing economic security.
The first, which the Commission has already mentioned, would seek to limit companies’ reliance on single sources for certain critical supplies.
The second would limit access to the EU single market for countries that undermine fair market conditions through political or economic means, without specifying what the trigger for EU reaction would be or what action the EU should take.
The paper said that any proposal by the Commission to activate counter-measures against another country should be adopted unless a qualified majority of EU members opposed – a lower hurdle than for some trade measures.
The paper also said the Commission should be able to activate such new measures swiftly, which German government officials said could mean a matter of days.
Legislation to enact a new instrument would still need approval by EU governments and the European Parliament.
A French presidential adviser said it was urgent for the EU to take action, that the imbalances with some trade partners had become unsustainable, and that France and Germany were keen for the bloc to deploy existing anti-dumping measures as soon as possible.
“France and Germany are very keen to put an end to the naivete on trade,” the adviser told reporters.
Brazilian assets were trading higher on Monday after right-wing Senator Flavio Bolsonaro, the son of ex-leader Jair Bolsonaro, came in first in the first round of Sunday’s presidential election.
The Bovespa benchmark stock index gained more than 8% and the country’s currency strengthened against the U.S. dollar following the vote.
The eldest son of former President Jair Bolsonaro won 47% of the votes and will face leftist incumbent President Luiz Inacio Lula da Silva, who secured about 45% of the vote, in a runoff on Oct. 25. Polls had forecast Lula would lead the first round of voting by around three percentage points.
Investors cheered on Monday morning as Bolsonaro’s strong showing was matched by gains for his allies in Congress. Analysts say a friendlier legislature would make it easier for him, if elected, to push through a pro-market agenda of tighter public spending, privatizations and tax cuts.
“Brazil wants change,” Bolsonaro said on Sunday evening, heralding the “end of the era of (Lula’s) Workers’ Party.”
Shares in retailer Magazine Luiza, stock exchange operator B3, lender BTG Pactual, homebuilder Cyrela and conglomerate Cosan jumped more than 20% each, putting them among the top gainers.
J.P. Morgan upgraded Brazil’s equities to “overweight” on Monday, saying a more favorable political backdrop after recent election developments had improved the outlook for the region’s largest market and could drive a period of outperformance.
Brazil’s real currency strengthened more than 4% against the U.S. dollar in early trading, moving below 5.00 per greenback, from around 5.22 previously, in line with analyst forecasts and with the currency’s performance four years ago when then-President Jair Bolsonaro did better than expected in the first-round vote against Lula.
The elder Bolsonaro went on to lose to Lula in the second round of that election and was subsequently convicted of trying to carry out a coup to overturn the result. The former president was sentenced to about 27 years in prison and is currently under house arrest.
Brazil’s international debt also rallied on Monday, while broader fixed-income markets were jittery. The 2056 bond was up 1.4 cents on the dollar to bid at 93.5 cents, Tradeweb data showed.
‘The market wants change’
Bolsonaro has pitched himself as a “more centered” version of his father to investors concerned about Brazil’s burgeoning fiscal pressures.
“It remains to be seen whether the senator would ultimately prove more fiscally responsible than Lula would be in a fourth non-consecutive presidential term. However, markets are likely to give him the benefit of the doubt,” said Thierry Larose, portfolio manager at Vontobel.
If he is elected, Bolsonaro would enjoy some room to maneuver with Congress after his Liberal Party emerged as the biggest winner in congressional races on Sunday.
Bolsonaro’s party increased its representation in the Senate from 15 to 28 seats, the strongest result for a party since Brazil’s return to democracy in 1985. It also is projected to secure 121 seats in the lower house, up from its current 98 seats.
“The likelihood of advancing reforms is much greater,” said Pedro Paulo Silveira, an analyst at Terra Investimentos. He noted that during the previous Bolsonaro government, reforms often depended on costly political bargaining or stalled altogether.
Analysts also expect the real to continue strengthening into 2027. Societe Generale forecast that it would move to 5.10 by the end of 2026, with scope to move below 5.00 in the first half of 2027. Morgan Stanley forecast the real could strengthen past 4.90 and toward 4.50 in the first quarter of next year.
“The market wants change, it wants reform; it doesn’t want a high public deficit; with the current government, all of this will continue,” said Pedro Galdi, investment analyst at the AGF Investments platform.
Bolsonaro’s strong showing is likely to boost market confidence in the near term, said Bryan Harris, a managing partner at Sabio.
“The market will be looking for clear signals from Bolsonaro that he is serious about tackling the country’s problems,” Harris said.
Heading into Sunday’s vote, most private polls, which largely underestimated the younger Bolsonaro’s strength, had shown the 45-year-old senator and Lula, who will turn 81 later this month, about even in a runoff vote.
Addressing a crowd at a hotel in Sao Paulo, Lula said he had been convinced he would win the election in the first round.
“Starting tomorrow, we begin a new campaign,” the leftist leader said, promising to show voters what he had accomplished as president.
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