Fed’s Powell facing rising criticism for inflation missteps
WASHINGTON — Federal Reserve Chair Jerome Powell won praise for his deft leadership during the maelstrom of the pandemic recession. As threats to the U.S. economy have mounted, though, Powell has increasingly struck Fed watchers as much less sure-footed.
Inflation has proved higher and far more persistent than he or the Fed’s staff economists had foreseen. And at a policy meeting last week, Powell announced an unusual last-minute switch to a bigger interest rate hike than he had previously signaled — and then followed with a news conference that many economists described as muddled and inconsistent.
It’s been a sharp turnaround for Powell, who is widely credited with preventing what could have been a far worse economic crisis during the pandemic and who last month won an easy bipartisan Senate confirmation for a second four-year term.
Now, as he confronts chronically high inflation, plunging financial markets and the growing threat of a recession, Powell is facing questions — and criticism — surrounding his stewardship of the Fed at a time when its challenges are multiplying.
Thanks to a once-in-acentury pandemic, the first European war in decades and soaring gas and food prices that the Fed has limited power to affect, Powell could become the first Fed chair since Paul Volcker in the early 1980s to grapple with “stagflation,” a miserable combination of slow economic growth and high inflation.
Struggling to curb the worst inflation outbreak in four decades, Powell last week engineered a threequarters-of-a-point increase in the Fed’s short-term interest rate — the largest single rate hike in a quarter-century. It was an unexpectedly aggressive move after Powell had made clear a month earlier that a more modest halfpoint rate hike was coming.
At his news conference, Powell defended the Fed’s decision by noting that the most recent inflation readings had been even more worrisome than expected. Yet Powell’s explanation was faulted by many Fed watchers, with some complaining that he had failed to articulate a coherent and consistent policy.