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IN DEFENSE OF FEDERAL RESERVE CHAIRMAN JEROME POWELL
By William J. Dodwell August 26, 2025
I am a staunch Trump supporter. But dedication to objectivity and truth as one sees them is paramount. As such, I register my dissent regarding the widespread disparagement of Federal Reserve Chairman Jerome Powell and his monetary policy, including that of the president.
Historically, the Fed has been a whipping boy for economic ills. However, the long crescendo of criticism opposing Powell’s interest-rate policy seems to have escalated into a bandwagon effect built on Trump’s frequent jawboning about too-high interest rates. The outcry is also out of a go-along to- get-along mentality in the Trump camp. Once the province of monetary wonks, the clamor for Fed rate cuts now sounds like groupthink among commentators far removed from the intricacies of the issue. These grandstanding naysayers largely include those bent on currying Trump’s favor, fearing his wrath, and protecting their friendships and social invitations. And, of course, the din also has come from those auditioning for Powell’s job when his term expires next May, as well as from the president’s loyalists. Some prominent figures absurdly call Powell stupid publicly. Doth protest too much? The outrage sounds like a concerted effort, possibly orchestrated by the president, to pressure and even humiliate Powell into cutting rates, and God help anyone who dissents.
The apparent herd instinct at play here is redolent of the closing of the ranks in all media proscribing compelling claims of outcome-changing fraud in the 2020 presidential election, the questioning of President Obama’s country of birth, and the challenging of the legitimacy of the climate-change agenda. And recall the seeming en masse shift among security analysts who abandoned traditional stock valuation measures during the dot.com boom of the 1990s. They prostituted themselves to adopt mythical metrics such as multiples of revenue growth rates as substitutes for price/earnings ratios to justify their clients’ “irrational exuberance” for internet stocks. In early 2000 the market crashed as sanity returned. Like those analysts, many of Powell’s critics fear bucking the tide. This is not to deny reasonable, and possibly correct, opinions in opposition to Powell’s policies. But, like the aforementioned sacred cows, a vigorous two-sided debate is absent.
Fed independence
Anti-Powell intimidation and grandstanding tactics of President Trump and his allies to force rate cuts can undermine the independence of the central bank. The president’s personal attacks and threats of firing Powell could make lesser chairmen capitulate, to the detriment of the integrity of the institution and the economy. Suspect is the sudden resignation of Powell-assenting Fed governor Adriana Kugler and Trump’s interim replacement with his comrade-in-arms chair of the Council of Economic Advisers, Stephen Maran. Also dubious is Trump’s firing of Powell-supporting governor Lisa Cook for mortgage fraud, notwithstanding the merits of the case. While Trump’s selective prosecution of those who waged law fare against him is retaliatory, it also fosters accountability and deterrence against serious injustice. But retribution against contrarian Fed officials is problematic.
The contretemps
The criticism started after Powell’s quick series of rate cuts in 2020 in reaction to the severe economic contraction precipitated by the Covid pandemic. But he later delayed corrective rate hikes spawned by the inflation caused by Biden’s profligate spending under the guise of Covid relief. The Fed chairman believed that inflation was “transitory” and would abate quickly once the temporary production-stifling supply-chain bottlenecks subsided. As it turned out, that aberration lasted some two years. In the interim, inflation reached 9.1% year-over-year in June 2022 and over 20% cumulatively to date. Powell may be faulted for an excessively easy money policy against Covid, and certainly for his monetary accommodation of Biden’s spending spree. Some even believe Powell kept rates low to help Biden’s reelection bid in retaliation for Trump’s sharp rebukes against him.
Powell finally began to raise rates in March 2022 eventually bringing annual inflation down to 2.3% in April 2025, a decline of almost 7 percent points. At the same time he adopted quantitative tightening, selling bonds that resulted in reducing the Fed balance sheet from $9 trillion to $6 trillion. And, for the first time in a long while real wages increased. For this he should be applauded as his monetary policy, in conjunction with normalizing supply-chains, brought inflation way down pretty quickly. Biden claimed credit for the turnaround but had absolutely nothing to do with it as his ongoing spending and regulation fueled inflation. The curative was Powell’s monetary policy.
With inflation way down, Powell cut the fed funds rate by 1% in the fall of 2024 to 4.5%. But he has resisted growing calls for more rate cuts because he had not attained the Fed’s longstanding inflation target of 2%, and was loathe to cut too early only to disrupt financial markets by raising rates again. In particular, he believed Trump’s tariff policies would be inflationary if the import levies were to be passed on to consumers. What’s more, spending is still relatively strong, especially for services, and private credit outstanding is high. The unemployment rate has long remained around a historically low 4% (although amid a suppressed labor participation rate)
An upward trend in bond yields, and a weak dollar coupled with a record-high gold price suggest inflation worries in the market. Rate cuts would likely depress the dollar further giving rise to new import inflation that carries over to domestic prices. In addition, record-high stock prices augur strong economic growth on the horizon and suggest interest rates are not too restrictive. Of course, lofty stocks also presage massive investment in artificial intelligence, promised foreign investment in the U.S. to lessen or avoid Trump’s tariffs, and now anticipated rate cuts.
So, Powell’s delay in raising rates against rising inflation, combined with continued resistance against cutting rates amid much lower inflation, have critics calling him Too Late Powell. Powell’s detractors claim his tight money hampers economic growth, thus costing jobs and tax revenue. His rate policy also makes interest payments on the national debt more costly than they should be, thus exacerbating the deficit. President Trump is particularly focused on interest rates from experience. As a real estate developer, he was very dependent on debt, calling himself “the king of debt” for his creative use of leverage, even in his commercial bankruptcies. He does not seem that concerned with the macroeconomic picture.
Critics say Powell’s high rates are particularly sacrificial as the employment market softens. They also retard borrowing and investment as economic stimulus. They question why the Fed’s federal funds rate should have been up to two basis points above inflation, and they point to lower rates in other countries. Some pundits call for a full percentage point reduction in the benchmark rate.
Tariff uncertainty
Powell’s critics dismiss the seriousness of current inflation at 2.7%. Some say Powell’s economic data are misstated. In an 8/13/25 interview with Bloomberg’s Joe Mathieu, Peter Navarro, senior trade adviser to Trump and the brain trust of his revolutionary trade policy downplayed inflation. He says new tariffs have not been inflationary because primarily exporters are absorbing them to ensure continued access to the U.S. market. But a recent Goldman Sachs report says that through June consumers have absorbed 22% of tariffs while businesses have paid 67%. That share is expected to roughly flip in time. The report points out that even domestic producers not affected by tariffs will raise prices as their importing competitors pass their tariffs along to customers.
It is too early to tell about tariffs, but it is reasonable to expect producers and consumers will bear the cost as exporter and importer profit margins shrink. The proof is in the pudding. The producer price index for the one month of July rose an astronomical .9%, the highest in three years and way above real wage growth. What’s more, there is no saying what tariffs will apply in the future as Trump and trade partners engage in reciprocal and retaliatory tit-for-tat. Trump also leverages tariffs for geopolitical gain. Consider Trump’s extra 25% tariff (to 50%) against India for continuing to buy Russian oil. In any case, tariff revenue can significantly defray the budget deficit. On the other hand, the Supreme Court might reject Trump’s constitutional authority over tariffs without congressional input. Uncertainty? Sure there is.
Inflation is not beat
Contrary to a mounting consensus, inflation is not likely vanquished. Price pressures in the pipeline will become evident as the full impact of tariffs passes through the economy to consumers. The whopping July wholesale price index supports this assessment. A weak dollar and increased bond yields following Powell’s past rate cuts also seem to reflect inflation expectations. While a weakening employment market may seem to justify rate relief, the slower hiring may be to compensate for over-hiring and over-retaining during the severe Covid labor shortage. Job market softness also may be in anticipation of eventual AI substitution. In addition, Trump’s immigration policy of closing the border and deporting illegals reduces the supply of cheap unskilled labor available to businesses, thus inviting inflation, unless it offsets slack demand from depressed hiring. Nonetheless, the Fed’s objective of maximum employment is realized. Cutting rates might prop up superfluous workers and contribute to inflation.
Non-inflationary economic growth where supply and demand are in relative equilibrium absent supply bottlenecks calls for lower interest rates. Trump’s new tax bill, his deregulation and energy policies, and the heady prospects of AI development and investment constitute an impetus for the growth scenario. High rates ought not throttle this dynamo. But what if the ensuing economic growth creates imbalances as to spawn inflationary shortages, as so often happens? This would be inflationary growth that may warrant a monetary governor. Currently, spending is robust, GDP growth is sluggish, and employment is optimal but softening. What is the correct monetary prescription, growth stimulus through rate cuts or inflation deterrence through the status quo or more?
Is unemployment risk overrated?
Critics emphasize the primacy of the highly political unemployment rate and Powell seems quite sensitive to this factor in his inflation assessments. Maybe too much. As mentioned, current low unemployment might suggest employment even above theoretical full employment in view of the Covid over-hiring and retention, as well as impending robot automation. As such, employment might be too high at the expense of productivity that is essential to economic growth. Therefore, Powell ought not obsess about unemployment at the expense of imposing inflation on other sectors of the economy. Jobs are great, but at what cost? Speaking of productivity, the predominance of government job growth under Biden has yielded to the preponderance of private-sector job creation under Trump, a great antidote to inflation.
Conclusion
Interest-rate policy is not cut and dried as Powell’s critics claim. It is fraught with unknowns. In any case, his position on interest rates has met nearly unanimous agreement throughout his tenure among the eighteen other permanent and rotating members of the Federal Open Market Committee that sets rates. Powell’s stand against Covid-era inflation has accomplished the long-desired soft landing that has avoided recession, and ultimately satisfied his dual mandate of full employment with stable prices. Open and even-handed debate would acknowledge this.
All things considered, Jerome Powell is not the bogeyman media depict. The piling on is more political than substantive. Powell stated at the annual Fed meeting at Jackson Hole, Wyo. on August 22nd that “the balance of risks seems to be shifting” to possibly warrant rate cuts. The financial markets and others immediately interpreted his words as fait accompli. The futures market now indicates over a 90% chance of a rate cut at the next Fed meeting September 16-17. If that happens, one wonders whether Powell’s decision will be borne of conviction or capitulation.
©2025 William J. Dodwell
Position Statement - Discusses the application of Comprehensive Conservatism as expressed through the activities of government, consumers, business and investors. (See side bar index.)