This week witnessed the last Fed Open Market Committee meeting chaired by Jerome Powell, the embattled Fed Chairman first appointed by Donald Trump in 2018 and then reappointed by Joe Biden in 2021. Powell’s term in the chair expires May 15th and if the Senate can get its ducks in a row by June 17th, the next FOMC meeting should be chaired by a second Trump appointee, Kevin Warsh.
The Powell Fed had to deal with the adverse economic impact of the Covid pandemic, with the disastrous economic fallout from Biden’s so-called “Inflation Reduction Act”, not to mention global trade instability in the wake of Trump’s new US tariff regime. One might say Jay Powell suffered the worst of both the Trump and Biden worlds… and others might say he added to it. Investors can thank him for years of across-the-board asset price inflation that minted millions of new millionaires-- while those without large investment portfolios complained of falling further and further behind.
If you’re waiting to celebrate the end of the Powell Era, be wary of what you wish for. First off, Jay intends to hang around. Powell may not be the Big Kahuna after May 15, but he will still be a governor and a voting member of the FOMC. His Biden nomination overlaps his chairmanship into early 2028, and he intends to linger “for an indefinite period.”. He wants to keep his hand in until the GAO investigation into the cost over-runs on the Fed HQ is completed, which is probably a good idea given how vindictive and engrossed Washington became in the politics of personal destruction from 2017 on.
To my way of thinking, a Fed Chairman’s central banking role is far more critical to the nation than his building renovation and interior decorating duties. So why is a Fed chair even messing with that? Fact is, efficient, effective government contract management requires a unique set of skills that few have mastered. (We know this with certainty because virtually no government contract comes in on time and within budget. No one goes to jail. More often than not the contract is re-upped to complete the work.) Renovation jobs are obviously something that should be overseen by a building professional skilled in contract management, not a Phd economist nor a Juris doctor skilled in “consensus building”.
In April 2017 when Jay Powell became Chairman, the Fed had all but announced it was part of the Trump “resistance”. The Fed’s Obama holdovers had begun hiking interest rates as soon as the election was decided-- when both GDP growth and inflation were near 2%. (Ex-Deputy chair Stanley Fischer even let the resistance cat out of the bag in an editorial.) At the time, it was estimated 90% of the employees at the Fed were registered Democrats. Suffice it to say, a reputed “consensus builder” and attorney like Powell is going to have a tough time changing the course of such an institution.
I once bad-mouthed economists in this space, writing that if you laid all of them end-to-end, they would never come to a conclusion. (That was way before partisan-group-think co-opted the Fed.) Then Powell, an attorney, came along, and economists started to look better to me. Attorneys live for irrefutable evidence and by the time you get that in the economy, you’re already six to nine months behind the curve. It takes economic understanding to be a proactive Fed chair, and a strong will not to automatically go with what the institutional consensus may be trying to sell you.
We can only hope that the next attorney chairing the Fed is better suited to establishing a proud personal legacy as a central banker than the last.
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