Washington (EFE).- Economist Jerome Powell stepped down on Friday as chairman of the United States Federal Reserve (Fed) after an eight-year tenure marked by the ravages of COVID-19, the subsequent high inflation, and the pressure exerted by US President Donald Trump (the person who originally nominated him) to influence monetary policy.
Initially proposed in 2011 by former President Barack Obama (2009-2017) to occupy one of the seven seats on the Board of Governors of the US central bank, Powell, a figure previously seasoned in investment banking and who had also worked as Under Secretary of the Treasury, ended up leading the body in 2018 after Trump, in his first term, nominated him to succeed Janet Yellen.
The Republican praised him then for his ability to build consensus and his understanding of the mechanisms that make an economy grow.
At the time he accessed the Fed presidency, the US economy was growing above 4%, unemployment was at historic lows, and inflation was close to the 2% target.
To cool the economic engine, the Fed raised interest rates four times during Powell’s first year in office, which eventually provided the institution with crucial maneuvering room ahead of what was coming.
Rates virtually at 0%
In March 2020, with the US economy abruptly halted by the first wave of coronavirus infections, the Fed convened an emergency meeting in which it cut the benchmark rate by one and a half points, leaving it virtually at 0%.
The rates would remain there for almost two years, until February 2022, when, with prices increasing almost 8% year-over-year, the entity changed course.
In the following 18 months, and after reaching inflation not seen since the oil crisis, the Fed, unable to cool inflation, continuously raised rates, increasing them by more than five percentage points in total.
Powell’s successor, Kevin Warsh, also nominated by Trump, has openly criticized the entity’s choice to maintain an expansionary profile for so long, resulting in a five-year period of price increases above the 2% target.
Trump’s return to power in 2025, the man who had praised him for his mastery of economic fundamentals, brought new turbulence for the now former Fed chairman.
The Republican leader, who had already asked Powell for greater flexibility in his first term, raised the tone and publicly pressured the Fed’s top leader to lower rates faster, even with inflation moderating, although still above 2%.
Pressure campaign
The US president eventually attacked Powell personally, calling him an «incompetent» and accusing him of harming the country’s economy by not heeding his requests for a more aggressive rate cut.
His pressure campaign reached the point where the Department of Justice culminated in the opening of a criminal investigation against the economist for alleged fraud linked to cost overruns in the renovation of the Fed’s headquarters in Washington.
In April, after a federal judge ruled that the accusation was politically motivated and facing the threat of a Republican senator who said he would not unblock Kevin Warsh’s candidacy until the case was dismissed, the Department of Justice announced it was dropping the case.
Despite this, the White House ordered an internal investigation of the Fed regarding the cost overruns, and Powell, contrary to tradition, announced that he will remain a member of the Board of Governors (he can remain in the seat until January 2028) until those inquiries are concluded.
Thus, Warsh inherits the Fed starting Friday in an atmosphere tainted by the coercion against his former chairman and Trump’s eagerness for a substantial reduction in rates.
This last point seems complicated due to the inflation resulting from the war against Iran and the little predisposition shown by the current members of the Federal Open Market Committee (FOMC) to modify the Fed’s current monetary policy approach. EFE
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