Kevin Warsh, known for his contentious relationship with Wall Street during the 2008 financial crisis, has been approved for a 14-year term as the head of the Federal Reserve. He was confirmed on Wednesday to succeed Jerome Powell as chairman of the U.S. central bank.
Powell’s tenure, which began with his appointment to the Federal Board of Governors by former President Barack Obama, will conclude on Friday. Warsh’s arrival is seen by some as a fresh hope, but his predecessor offers lessons on what can go wrong, or at least, what to be cautious about.
Unfortunately, Powell’s leadership has often been criticized for significant missteps, some of which had severe consequences for the country. Here are four key areas where he faltered.
1. “Temporary” Inflation Woes
Back in March 2021, Powell asserted that inflation, which began creeping up during the pandemic, was likely “temporary.” This view, while perhaps well-intentioned, possibly aimed at appeasing then-President Joe Biden, contributed to a decision against raising record-low interest rates at the time. Critics argue that this miscalculation stunted the Fed’s response to a growing inflation crisis.
MarketWatch’s Greg Robb pointed out that Powell’s reliance on this “temporary” perspective meant the Fed couldn’t effectively adjust interest rates throughout 2022, leading to an expansion of its balance sheet through bond purchases. Economist Mohamed El-Erian deemed it “probably the worst inflation call in Fed history.”
As inflation soared, hitting levels unseen in four decades, Powell ultimately had to raise rates 11 times between March 2022 and July 2023, bringing the benchmark to a range of 5.25% to 5.5%. Reflecting on this, Powell mentioned, “In hindsight, I wish we had strengthened our policies sooner.”
2. Misguided Economic Policies
Initially hesitant to raise rates under President Biden, Powell previously expressed a desire for rate increases during Donald Trump’s presidency, despite economic prosperity at the time. Trump criticized Powell for raising rates, which he believed contributed to stock market instability. However, these rate hikes were largely influenced by concerns over Trump’s tariffs and tax cuts.
Although Powell hinted that fiscal policies were becoming more stimulative, some economists argue that Trump’s tariffs did not actually cause inflation. Peter Navarro, a Trump trade advisor, contended that Powell’s approach led to poor decisions, as he overestimated the inflationary potential of these economic policies.
3. Controversial Renovations
Under Powell’s leadership, the Federal Reserve approved a luxury renovation of its D.C. headquarters that came with a price tag of about $2.5 billion—far exceeding the initial budget. This project sparked controversy, prompting calls for investigations into Powell’s management decisions related to the renovations.
In a troubling turn, the Department of Justice issued a grand jury subpoena concerning this project, which was later canceled by a judge, further clouding Powell’s tenure with allegations of mismanagement.
4. Bank Failures
Powell’s oversight was put to the test when Silicon Valley Bank and Signature Bank collapsed in March 2023, marking two of the largest bank failures in U.S. history. After the fact, Powell admitted the Fed’s interventions were inadequate. He acknowledged the need for regulatory changes to better anticipate and mitigate such financial crises.
One of Powell’s aides also recognized that the Fed had not taken sufficient measures during the banks’ rise in size and complexity, leading to vulnerabilities that ultimately contributed to their failures. Despite these challenges, the Federal Reserve’s path ahead, now under Warsh’s leadership, could signal a new chapter for the central bank amid ongoing economic uncertainties.
