The chairman of the Federal Reserve (Fed) was praised for his decisive leadership in pulling the United States out of the recession caused by the pandemic, but now, as threats to the national economy mount, Jerome Powell is drawing increasing criticism.
Inflation has turned out to be higher and more durable than he and other central bank economists forecast. At a meeting last week, Powell announced at the last minute a higher rate hike than he himself had anticipated. He then gave a press conference that many economists described as confusing and incongruous.
It was an abrupt setback for Powellwho is credited with rescuing the US economy from what could have been a much worse economic crisis during the pandemic and easily won a second four-year term in a bipartisan vote in the Senate last month.
Now, faced with rising inflation, precipitous stock market declines and the looming threat of a recession, Powell faces questions and criticism for his leadership of the fed.
In the wake of the pandemic, the war in Ukraine and the consequent increases in fuel and food prices, Powell could become the first head of the central bank since Paul Volcker in the 1980s to face a “stagflation”, that is, a combination of inflation with low economic growth.
In its eagerness to combat the worst inflation in four decades, Powell last week it implemented a three-quarter percentage point increase in interest rates, the biggest rate hike in a quarter-century. It was a surprisingly aggressive move after Powell made it clear a month earlier that there would be a more modest half-point increase.
At his press conference, Powell defended the decision, saying that the most recent indicators of inflation had been worse than anticipated.
However, some experts questioned the explanation and complained that Powell did not outline a clear and coherent policy.
“The Fed was improvising, trying to catch up with painful inflation.” estimated Mark Zandieconomist at Moody’s Analytics. “It’s like the central bank doesn’t have a script, but is improvising halfway”, he added.
William Dudleywho as head of the New York Federal Reserve served alongside Powell on the board of directors of the fedHe stated last week that Powell it was putting the credibility of the central bank at risk.
“When the Fed changes its mind at the last minute, as it just did, that has the potential to undermine credibility.” of the institution, said dudley in a conference that was broadcast over the internet.