It would be difficult to find a more establishment figure than Federal Reserve Chairman Jerome Powell.
The grandson of a law school dean, graduate of Georgetown Prep, Princeton and Georgetown Law, successful career in investment banking, dedicated public servant and a pillar of the charitable community in the Washington area in which he lived for most of his life.
Radical, it’s far to say, isn’t part of the sixteenth Fed chairman’s personal or professional makeup.
But that doesn’t mean he’s not up for a fight.
Powell, whose term at the helm of the world’s most powerful central bank ends in May 2026, has weathered criticism from both sides of the aisle since then-President and now President-elect Donald Trump appointed him in 2018.
Democrats have assailed his record on bank regulation and climate policies, while Republicans have accused him of keeping rates artificially low and, in so doing, fueling an asset-price bubble while facilitating the ongoing surge in U.S. government borrowing.
Fed Chairman Jerome Powell faces unprecedented challenges over the final stretch of his eight-year term.
Andrew Harnik/Getty Images
He’s also faced unprecedented pressure from the former president himself, who in 2019 claimed that the Fed chairman he appointed has “no guts, no sense, no vision” when he refused to lower borrowing costs.
The following year, Trump insisted he had the authority to “remove him as chairman and put somebody else in charge.”
Pressure on Powell once; pressure again?
Few agreed with that assessment, but the president’s use of a bully pulpit to influence monetary policy was seen as a dangerous threat to the Fed’s cherished independence and the global financial market’s faith in its stewardship of the world’s reserve currency.
Powell, of course, held firm and steered the economy through an unprecedented Covid pandemic, soaring inflation, incessant recession projections and a regional banking crisis.
He helped tame price pressures, making up in part for his biggest policy mistake — deeming post-Covid inflation as “transitory” — kept the U.S. out of recession and oversaw the longest run of sub-4% unemployment in more than a generation.
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Now he faces, over the final stretch of his eight-year term, a challenge that not only echoes his Trump administration experience but also adds the uncertainty of a presidency unfettered by Democrats in Congress or restraint within its higher cabinet ranks.
Trump has promised to lower taxes, pay for them with trade tariffs, carve out trillions from the federal budget, lower inflation and deliver “growth like you wouldn’t believe” over his final four-year term.
Trump policies are a contrarian mix
The contrarian mix of policies, most of which have yet to be detailed by the officials who will be tasked to manage them, will layer a host of uncertainties onto the world’s biggest economy, and indeed the prospects for global growth, over the coming year.
Tariffs could slow export growth and blunt consumer spending, some of which will be affected by the higher domestic prices importers will pass on to American customers.
Unfunded tax cuts could balloon the already-record levels of U.S. debt, testing foreign investors’ patience in bond auctions, which could send borrowing costs sharply higher.
Spending cuts could sever the arteries of critical government programs, causing spillover effects into the broader economy that could derail its current success story. Job cuts in the public sector could lead to a knock-on effect to private payrolls.
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The president-elect’s immigration policies, meanwhile, could hollow out supply in the construction and housing sectors, which rely heavily on foreign-born workers. That could add to unit labor costs and stoke renewed wage-and-price inflation just as the Fed appears close to returning it to target.
Of course, the opposite could be true.
Tariffs may indeed offset tax cuts and encourage manufacturers to bring jobs back to U.S. soil. Immigration changes could free up labor markets while allowing for efficiencies that don’t contribute to inflation.
Budget austerity could begin a long, and necessary, path toward fiscal probity, which could buttress faith in the dollar and mitigate risks tied to entitlement programs over the longer term.
No one knows for sure, of course, and even the most sophisticated investors are showing remarkably different signs as to how they see Trump’s policies playing out.
Markets disagree on Trump’s policies
Stocks are set to end their best week of the year, and their best post-election rally on record, as investors bet on growth.
Bonds, meanwhile, are heaving toward ever-higher yields as investors worry that inflation spikes and extra borrowing will be a burden on markets for years to come.
The only man who isn’t making predictions, however, is the one who is responsible for managing everyone’s hopes, regardless of what comes out of the few square miles in Washington later next year.
Related: Goldman Sachs analyst hints at big risk to post-Trump election rally
“We don’t know what the timing and substance of any policy changes will be,” Powell told reporters in Washington Thursday after the Fed’s widely anticipated quarter-point rate cut. “We therefore don’t know what the effects on the economy would be.”
What he did say, however, is that he’s going to see those changes through to the end of his term, replying only with a terse but defiant “no” when asked whether he would step down early if Trump asked.
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Many political analysts have described Tuesday’s election as a victory for change over the status quo, with voters opting for a radical assault on government institutions they’ve deemed to have failed.
Powell, for one, appears determined to make one last stand for the power of the establishment and the Fed’s place within it.
“We are seeing strong economic activity. We are seeing ongoing strength in the labor market,” Powell said. “And so we think that the right way to find [a neutral interest rate] is carefully, patiently.”
Radical no. Exciting? Definitely not.
But it might be exactly what everyone, including the president-elect himself, actually needs.
Related: Veteran fund manager sees world of pain coming for stocks
