Those who have been reading my analysis on the FED and its policies for the past years know that, long ago, I nicknamed Jerome Powell “Jerome Burns”. Why? While leading the Federal Reserve in vastly different economic eras, Jerome Powell and Arthur Burns share significant similarities in their analytical framework for inflation, their attempts to balance the Fed’s dual mandate during periods of structural stress, and their confrontation of intense political pressure.
At their core, both chairmen analyzed inflation through the same lens, emphasizing that wage growth outpacing productivity is a primary driver of price increases, with Powell stating sustainable wage growth must align with 2% inflation and Burns warning that such wage increases drive up business costs and consumer prices. Furthermore, their policy frameworks were designed to pursue inclusive maximum employment, Burns under the Keynesian Phillips curve trade-off, and Powell through Flexible Average Inflation Targeting, which led them to test the economy’s capacity limits in a way that risked persistent inflation. Both also governed during periods of supply-side shocks (oil embargoes for Burns, pandemic disruptions for Powell) that complicated the use of interest rates to control inflation.
Most strikingly, both men faced extraordinary political pressure to set policies favoring the administration, with Burns enduring direct pressure from President Nixon and Powell, decades later, publicly stating that threats of criminal indictment were a consequence of not following President Trump’s preferences on interest rates while, objectively, during the whole Biden administration he led the FED in full support of the government’s policies. As a consequence, it shouldn’t be a surprise to anyone that the FED hasn’t hiked rates high enough during the last cycle, hardly making financial conditions tighter, henceforth inflating stock prices to nosebleed valuations in full support of Biden’s, and later on Kamala Harris’s, presidential campaigns in 2024 (when it even started unnecessarily cutting rates in the last stretch of the campaign).
Let me be clear, I am not saying that Powell should cut rates all the way down to 1.5% before the end of his mandate to fit President Trump’s agenda, but I find it so ridiculous how he is now portraying himself as the safekeeper of the FED’s political independence that, on the contrary, he undermined during all his tenure at the FED. If he were serious about that, the FED should be hiking rates right now, not the opposite. Even those living under a rock know that the official inflation measures of the US and around the world are grossly understated. Furthermore, even considering those bogus data, nothing justified all the rate cuts and the resumption of QE last month when the FED started to buy USD 40 billion of bills a month to support the US Treasury’s efforts to run buybacks and effectively cap long-term yields on US Treasuries.
While Jerome Powell keeps publicly claiming that he has been ensuring the FED followed its mandate of pursuing full employment and low inflation during his mandate, the data tell a whole different story. Official inflation in the US since COVID has been effectively growing at a long-term 3% rate, or 50% HIGHER than the official 2% FED target mandate. Employment, on the other side, has been overreported for years, with now stupid BLS employment revisions in the millions showing a much different picture compared to reality. What about economic stability? Corporate bankruptcies in the US are at a decade-high and rising, Private Credit Funds are starting to face value impairment, and corporates and consumers are carrying trillions of debt they will NEVER be able to repay. To summarize, if we draw a line and judge Jerome Powell’s achievements, the whole picture is a complete disaster.
The real focus of the FED under Jerome Powell, to an extent above and beyond his predecessors, has been to support the banking system and make sure no chronically insolvent banks would go bust. Because this is the reality: if anyone with a good understanding of algebra and basic banking accounting runs the mark-to-market on banks’ books, many US regional banks and even some large ones are effectively insolvent, as I documented so many times I became exhausted. Striking evidence of how the FED has been complicit in hiding banks’ problems was provided last year when the FED removed from the annual stress tests the biggest risk item in many large banks’ books, Private Credit lending, as I documented in: “2025 FED STRESS TEST REVEALS HOW TODAY’S FED IS COMPLICIT IN HIDING BANKS’ PROBLEMS“.
One thing we can be sure about: the next FED chairman is going to inherit a huge mess. Honestly, a mess of such a large size that the end of it in a biblical economic disaster is already assured; consequently, all the next chairman can do is delay the inevitable. However, kicking the can down the road will ultimately make the problem bigger and bigger to a point where social unrest becomes a serious risk due to the extent to which the current policies have been impoverishing the population and creating the worst wealth inequality since the years that preceded the Great Depression, which started in 1929.
As if all I said so far wasn’t enough, all other central banks across the globe, with the exception of the Chinese PBOC, are exactly doing the same. Some, like the BOJ, are dealing with a higher risk of economic implosion, having perpetrated reckless policies for decades, as the events of last week made it impossible to deny how Japan is now living on borrowed time.
Tomorrow Jerome Powell will take the stage, and for sure he will regurgitate his usual jibber jabber; expect the same to be done till May. Also expect President Trump to go nuts about FED rates being too high compared to where he wishes them to be, ignoring the fact that rate cuts have been ineffective in lowering the way more important for the economy long-term rates exactly as I expected more than a year ago, and against all the Wall Street analysts’ bandwagon, in “WHY, INSTEAD OF FIXING US PROBLEMS, FED RATE CUTS WILL WORSEN THEM“.
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