Powell’s Fed legacy: navigating post-pandemic inflation, jobs tradeoffs

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Jerome Powell’s time as Federal Reserve chair closed after eight years in which the Fed confronted an inflation surge that followed the pandemic, while unemployment slid toward historic lows. In an AP review of his legacy, the central bank’s shifting approach to interest rates—and Powell’s stance toward political pressure—emerged as the defining through-lines of his tenure.

One major theme was how persistent inflation became after Powell took over the chair. When Powell was sworn in eight years earlier, economists worried inflation and interest rates were too low and that too few Americans had jobs. AP reported that the economy later changed dramatically, with consumer prices rising sharply after the pandemic and staying above the Fed’s 2% target for more than five years, a period that affected household costs such as rents, cars and groceries.

AP also linked Powell’s legacy to the Fed’s rate increases after inflation proved harder to bring down than initially expected. The AP account said the Fed’s key short-term rate rose to a two-decade high in 2023, while unemployment fell to a half-century low during the same broad period. It described a policy pivot as inflation spread beyond initial supply constraints and became a more general concern.

In assessing the inflation fight, economists cited by AP described both criticism and support for how the Fed responded early on. The AP account said that Powell and other Fed officials, along with many economists, initially described the surge as “transitory,” tying it to supply-chain snarls as COVID disrupted factories and slowed ports. It also said some analysts later argued the Fed’s prolonged period of near-zero policy contributed to worsening inflation by failing to recognize stronger demand.

Mickey Levy, a former top economist at Bank of America and a visiting fellow at the Hoover Institution, criticized that approach in AP’s account. “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,” Levy said, adding that “The Fed contributed to that inflation and completely misread the tea leaves.”

The AP account also described how Powell ultimately oversaw a sharp rise in interest rates as inflation appeared more entrenched. It said that as inflation reached items such as apartment rents and Americans increasingly feared it would last, the Fed moved aggressively—describing it as the sharpest increase in interest rates since the early 1980s. AP reported that inflation later fell to 2.3% by September 2024, nearly reaching the Fed’s 2% target, and that Powell helped achieve what the story called an elusive “soft landing,” with inflation rising again after Trump imposed sweeping tariffs last April.

A second theme in AP’s takeaways involved how Powell managed the Fed’s employment mandate while tackling inflation. AP said the shift toward focusing more sharply on inflation came after the term began with an emphasis on the Fed’s mandate to pursue maximum employment. It noted that before the pandemic, Powell often praised a strong job market for disadvantaged workers, and AP said some economists argued that the Fed’s employment focus contributed to the delayed response to post-COVID inflation.

The AP account pointed to Powell’s public statements during that period. It said Powell, in an August 2021 speech, cited an unemployment rate of 5.4% as a reason to avoid hiking rates too early. The same AP review then described defenses of the employment-oriented stance from analysts who said there were no signs inflation was worsening in a way that demanded early tightening.

Julia Coronado, president of MacroPolicy Perspectives and a former Fed economist, offered that defense in AP’s reporting. “If you can actually push a little harder for a little longer with no consequences for inflation, then you should damn well do it,” Coronado said. AP reported she added, “He was absolutely right about that. He’s still right about that.”

AP also framed Fed independence as a key part of Powell’s legacy, both in how he handled conflict with the White House and in how he maintained relationships in Washington. It described how Powell endured relentless personal attacks from Trump soon after taking the chair and also said that in January he pushed back against what AP called an unprecedented legal investigation by the Justice Department. The AP account said Powell indicated he would keep serving on the governing board until he believed the Fed’s independence was truly restored.

In AP’s telling, one vivid public moment symbolized that pushback. The AP account described last July’s scene in which Powell and Trump appeared before cameras in hard hats at a Fed building renovation site; AP said Trump criticized the project as excessive and claimed it would cost more, while Powell corrected him on camera by pointing out that the president’s figure included an extra building that had already been renovated. AP said the episode reflected Powell’s willingness to resist day-to-day political pressure, an issue that economists say matters because it enables the Fed to take difficult steps that politicians may oppose.

The AP takeaways also said Powell’s outreach to lawmakers helped him navigate the political landscape. It cited research by University of Maryland economist Thomas Drechsel, who found that Powell met with senators more than twice as often as his two predecessors, with the meetings evenly split between Democrats and Republicans. AP also highlighted that even some critics credited Powell with defending central bank independence.

Don Kohn, a former vice chair of the Fed, summed up that aspect of Powell’s legacy in AP’s account. “The big plus is the way he has protected central bank independence,” Kohn said, adding it was “the most important thing for the future of the Federal Reserve and for protecting the public interest in having an independent central bank.”

As Powell steps away from the chair, AP’s concluding assessment tied his legacy to a mix of outcomes and judgments: an inflation fight that began with misread assumptions for some observers, evolved into the Fed’s fastest tightening in decades, and played out under political pressure that Powell and other Fed officials said threatened the central bank’s independence.