Words That Mattered: Fed Chair Jay Powell

Credit: Getty Images. Xinhua News Agency.

Today, May 15, is Jay Powell’s final day as Fed Chair.

Powell was sworn in as Chair in February 2018. He inherited an economy with unemployment at 4% and inflation slightly below 2%—near both sides of the Fed’s dual mandate. He leaves the role with unemployment close to 4% and inflation above 3% and rising—a miss on the price stability mandate. The two endpoints do not do justice to the scale of the economic challenges—above all, the pandemic—that Powell navigated. A historic decline in employment (blue line below) at the start of the pandemic in 2020, followed by the highest inflation in forty years in 2021-22 (green line). It was also an active Fed, with the federal funds rate (orange line) ranging from zero to over 5%.

Inflation was elevated in five of the eight years; employment fell short in only two. By the numbers, it was a tenure marked more by inflation misses than employment shortfalls, but the numbers alone won't settle how Powell is remembered. The lessons for monetary policy in those eight years will be debated for many years to come, and with them, Powell’s leadership at the Fed.

Pulling back the curtain on the Fed.

Powell's words will be as central to his legacy as his actions.

Forward guidance — using communication to steer markets — remained a struggle for the Fed under Powell. But that's largely because the future is hard to predict, not because the right words are hard to find. “Transitory” was a clunky term, but the real problem was the underlying judgment that inflation would subside on its own, not the communication.

The communication that Powell excelled at was talking to people, especially in times of crisis. His plainspoken manner and steady demeanor were a welcome counterbalance to the crises he faced. There are three examples across the past eight years that stick with me.

April 9, 2020 - The depth of the pandemic.

The pandemic was a once-in-a-hundred-year crisis that upended daily lives, roiled financial markets, and led to mass layoffs. Under Powell’s leadership, the Fed’s response was swift and aggressive. What stays with me is not the laundry list of lending facilities, rate policy, or economic forecasts. It's how he recognized the human costs and projected confidence in a path back to normalcy in the darkest days of the pandemic.

In this closing exchange with David Wessel, Powell perfectly met the moment:

Wessel: A lot of people are scared now … People want to know that our leaders, people like you, are confident that we can get through this.

Powell: This is going to be and is a very difficult time for many many people. People are getting sick. Their loved ones are getting sick. People are getting furloughed and laid off. People who started great businesses are seeing them shuttered. I wouldn’t want to say anything that diminishes the suffering that people are feeling. It’s going to be a tough time. But if the government continues to give people the support that they need. That includes us, that includes Congress, other parts of government. And if people stay home and stay healthy until it’s appropriate to go back to work. And if the health care policy experts devise a plan for a good way to go back to work and reopen the economy. If we do all of those things, there is every reason to think we can be back on the road to a recovery fairly quickly, and it can be a robust recovery.

Wessel: Well, as they say: from your lips to God’s ears.

It’s impossible now to convey how dark the world felt in early April 2020, and maybe that’s a blessing, but I remember the relief I felt listening to Powell. I needed to hear that with purposeful action, it would be okay.

August 26, 2022 - ‘There will be pain’ in fighting inflation.

Two years later, the crisis facing the economy was not furloughs and mass layoffs; it was surging inflation. In his annual Jackson Hole address in 2022, at the mid-point of four consecutive 75-basis-point hikes, Powell offered a blunt assessment of the pain that could result from higher interest rates:

Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance. Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.

Powell invoked Paul Volcker, who, as Fed Chair in the early 1980s, brought inflation down at the cost of a severe recession:

History shows that the employment costs of bringing down inflation are likely to increase with delay, as high inflation becomes more entrenched in wage and price setting. The successful Volcker disinflation in the early 1980s followed multiple failed attempts to lower inflation over the previous 15 years. A lengthy period of very restrictive monetary policy was ultimately needed to stem the high inflation and start the process of getting inflation down to the low and stable levels that were the norm until the spring of last year. Our aim is to avoid that outcome by acting with resolve now.

It was a short speech, running nine minutes. Blunt and to the point. Powell didn't soften the message, and he didn't hide behind technical language. He told people what was coming and why. That’s what public accountability sounds like.

January 11, 2026. A stand for Fed independence.

In normal times, Powell's legacy would flow from the Fed's successes and failures during the pandemic, as the Global Financial Crisis defined Ben Bernanke's. But these are not normal times. Powell’s less-than-two-minute video statement earlier this year will be central to his legacy. It’s already the Fed’s most-watched video.

It was Powell's first public stand against a pressure campaign by President Trump — a campaign to lower interest rates that began soon after Trump elevated him to Chair in 2018. During the past year, disparaging words turned into actions: the President tried to remove Fed Governor Lisa Cook, and, in January of this year, the Department of Justice subpoenaed Powell as part of a criminal investigation. Powell met this assault on Fed independence with powerful words, too:

I have deep respect for the rule of law and for accountability in our democracy. No one—certainly not the chair of the Federal Reserve—is above the law. But this unprecedented action should be seen in the broader context of the administration’s threats and ongoing pressure.

This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. It is not about Congress’s oversight role; the Fed through testimony and other public disclosures made every effort to keep Congress informed about the renovation project. Those are pretexts. The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President.

For the first time, Powell clearly called out President Trump's interference, and in doing so, became the first sitting Fed Chair to publicly accuse a sitting president of trying to bend monetary policy to political ends. He also underscored that the independence of the Fed isn't about protecting the institution; it’s about the quality of the policymaking:

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.

It's too soon to judge the choices Powell made in defending the Fed — when he stayed quiet, when he spoke out. He has said the administration's actions left him no choice but to defend the institution, and that's why he's staying on as a Fed Governor. I remain deeply concerned about the Fed’s independence. But whatever comes next, Powell's statement will be remembered. It was the moment a Fed Chair told the country, plainly, what was being done to the institution and why it mattered.

In closing.

Actions speak louder than words, but Powell’s words did real work — talking the country through the pandemic, laying out the cost of fighting inflation, and naming the threat to the Fed’s independence. A Fed that talks less to Wall Street would not bother me; forward guidance is most effective when used sparingly and only when the Fed can speak with conviction. But a Fed that talks less to the American people would be a grave mistake. The Fed should be clear about what it’s doing, why, and what it could cost.

We do not choose our challenges; we choose our response. Powell, like any policymaker, will be judged on outcomes, which reflect both the challenges he faced and the choices he made. The choice to keep talking, plainly and often, was one of his best.