In baseball, three strikes and you’re out. Jerome Powell has already bungled two major challenges as chairman of the Federal Reserve. Based on last week’s Fed meeting, he’s going to strike out again.
Powell’s first mistake was rushing Congress into appropriating trillions for unnecessary post-COVID-19 “recovery” spending. That sent inflation soaring to 9.2%, the highest level in 40 years. His second blunder was failing to understand that the inflation caused by former President Joe Biden and former House Speaker Nancy Pelosi’s (D-CA) $6 trillion spending spree wasn’t “transitory” and then waiting too long before trying to bring it under control.
Powell is now making his third major mistake by playing the waiting game again instead of resuming interest rate cuts. By waiting to see what the post-tariff economic data portends, Powell risks triggering the recession that ordinarily follows a prolonged period of high interest rates.
By statute, the Federal Reserve has two main responsibilities: keeping inflation under control, two strikes against Powell on that score, and keeping unemployment low. Coupled with economic uncertainty about how the tariff wars will play out, Powell’s hesitancy to cut interest rates now could cause a recession during the three to six months our Hamlet-on-the-Potomac is waiting for data. Delaying rate cuts dampen the housing market, compound economic uncertainty, and depress consumer sentiment.
President Donald Trump just negotiated a trade agreement with the United Kingdom and appears to be on the way to a longer-term deal with China. Over the next several months, other countries will follow suit. Many of the proposed tariffs will never go into effect because they’ll be replaced with new trade agreements. Meanwhile, Powell dithers.
Powell’s major policy errors span five of his seven years in office. What Powell failed to understand about people’s 2021 release from their government-imposed lockdowns — yes, we were all effectively under house arrest in 2020 — was that people deprived of work, entertainment, and social contact were ready and rarin’ to get back to normal life. They didn’t need trillions of federal dollars for green energy boondoggles or sham “Build Back Better” programs to get America moving again.
Powell isn’t the only elitist to have misunderstood how quickly America’s economy would come roaring back with or without Congress’s spending spree. Because our political elites were insulated in bubbles of privilege, living under one set of rules during COVID-19 while imposing an entirely different reality on the rest of us, they couldn’t grasp the readiness of ordinary people to get on with life.
When the lockdowns were finally lifted, people had $2.1 trillion saved up and ready for a spending spree. That cash surplus dried up one year ago, according to the Fed. Not coincidentally, as personal consumption spending dropped over the next three months, so did the inflation rate. Yet the parsimonious Powell waited five more months to begin gradual interest rate cuts.
This time around, he’s either being excessively cautious or, worse, deliberately sandbagging Trump. He’s definitely not on board with Trump’s domestic agenda. Powell oversaw the Fed’s ill-conceived forays into dictating the racial, gender, and identity composition of workforces, its own and corporate boards of directors and management; hid diversity, equity, and inclusion mandates for Federal Reserve hiring; and aligned the central bank with climate change activists to use the financial system to compel corporations to go net zero on carbon emissions.
It’s unlikely he shares Trump’s goal of reshaping international trade. Powell was deputy treasury secretary when President George H.W. Bush first began negotiating the North American Free Trade Agreement, which is blamed for 4.5 million lost manufacturing jobs and rising income inequality, with Canada and Mexico. After the Bush administration, Powell became a partner in the Carlyle Group, one of the world’s biggest private equity firms. The Carlyle Group profited handsomely during the era of globalism, and its partners shared in the spoils. Carlyle is deeply committed to DEI and environmental, social, and governance initiatives that are anathema to Trump.
It’s cold comfort that Powell is waiting for the Fed to get more statistics to crunch before cutting interest rates. That’s because the Federal Reserve has a notoriously bad record of economic forecasts, no matter how much data it has. It could just as well consult a Magic 8 Ball.
If Powell isn’t deliberately sabotaging Trump by wrecking the post-COVID-19 economic recovery, it’s ironic that he’s willing to risk a recession now. That’s because if there is a recession, he’ll blow his one shot to salvage his legacy as Fed chairman.
Only a few months ago, financial experts and economic commentators were lauding him for having achieved a “soft landing” after slamming the brakes on inflation. A soft landing means that instead of going into recession after rate hikes, the economy keeps growing, unemployment remains steady, and inflation drops to the Fed’s 2% annual range. It almost never happens when the Fed raises interest rates dramatically and keeps them high for a lengthy period.
LET’S BRING UNIVERSAL SCHOOL CHOICE TO THE FINISH LINE
If Powell can pull off a soft landing, he’ll go down as a great Federal Reserve chairman. Personally, I think it’s absurd to applaud the guy who set the house on fire and then let it keep burning too long before finally deciding to put it out. But history is fickle, and many good accomplishments go unrecognized while blunders and blunderers win praise.
One thing is certain. If Powell gets it wrong again, he’ll be a three-time loser.
John B. Roberts II is a former international political strategist and executive producer of The McLaughlin Group. He served in the Reagan White House, holds a master’s degree in philosophy, politics, and economics from Oxford University, and is currently an author and artist. His website is www.jbrobertsauthor.com.