Fed Integrity
Jerome Powell's tale of courage
My first job after grad school was at the Board of Governors of the Federal Reserve System. I started work in 1972, just before I defended my doctoral dissertation. I was in awe of the place — the great marble palace of central banking, complete with all the traditions and history that underscored its pre-eminent position at the center of world financial markets and the global economy.
I was not in awe of then Fed Chairman, Arthur Burns. He was an intimidating man who took special pleasure in berating the staff. I will never forget the first time I was asked to brief the Board in early 1973. It was a regular Monday meeting that began with a series of short regular briefings on the economy. I went first and I was scared. The three-story Board room, with senior Fed staff seated on the perimeter, was beyond intimidating. The Chairman was even worse.
I launched into my carefully scripted presentation, and Burns quickly interrupted me, complaining he couldn’t hear me — that I needed to start over. I gulped and I did. Then about one-minute later I was reporting on trends in auto sales in the third ten-day selling period of February. Burns interrupted me again, this time with a trick question based on his brilliant observation that there is no final ten-days in February. I gulped again and responded that that the selling rate is computed on a daily average basis; he, of course, knew that, but he was more interested in unnerving a young economist. And he did. I remember staring at the gigantic closed doors of the Board room, tempted to bolt!
I remember Arthur Burns for far more than that. He was the quintessential example of a politicized Fed Chairman, who shaped policy in accordance with the strong wishes of a sitting President, Richard Nixon. Lacking the integrity of an independent central banker, Burns gave Nixon what he wanted — an overly accommodative monetary policy when serious inflationary pressures were mounting. The rest is history: An explosive surge of double-digit inflation ultimately known as the Great Inflation and an effort by the Chairman Burns to explain it all away by excluding the initial food and energy shocks from what he incorrectly argued was a well-behaved “core inflation.”
I wrote about this in 2021 when the Fed erroneously diagnosed a serious outbreak of post-Covid inflation as “transitory.” The Fed made an honest policy mistake at the time — it was not politically compromised. The lesson from the early 1970s that has been confirmed by solid academic research, is that central bank independence matters more than anything in establishing a credible monetary policy. That lesson is obviously lost on Donald Trump and his ahistorical approach to setting policy in most areas, including, of course, monetary policy. His preference for a 1% Federal Funds rate is well known. Trump, furious with Powell for not caving in to his intimidation, has instructed his Justice Department to seek a criminal indictment that purportedly takes aim at cost overruns in renovating the magnificent old Board building. Trump, of course, denies knowing anything about DOJ actions.
In an extraordinary response last night, Jerome Powell stood up for Fed independence, underscoring the “pretext” of cost over-runs on the Fed’s renovation project. As a former real estate developer, this is a subject in which Donald Trump is especially well versed; cost overruns of many Trump projects are well known , including the Atlantic City Taj Mahal, the New York SoHo hotel, and even the trademark Trump Tower.
Powell, to his credit, didn’t take the bait. In his statement and video message of January 11, he stated in no uncertain terms that he will continue to resist “political pressure or intimidation” — words that were never in the lexicon of Arthur Burns.
In a piece I wrote last summer after Powell’s speech at the 2025 Jackson Hole Symposium, I argued that the Fed Chair deserves a spot in the Pantheon of central banking for his extraordinary act of political courage in defending Fed independence. I took some flak for taking that unpopular position. Last night’s statement tells me I may have understated that case. Jerome Powell is a public servant with enormous integrity, a word that, sadly, is not in the lexicon of the Trump Administration or its sycophants .
Well said Steve -
Trump fears strong institutions because they restrain his most base and core instincts and the limits of his power. He loved Roy Cohn, as he does Stephen Miller, for his axiom “Don’t tell me the law, tell me who the judge is”. Trump and his father before him have always been about gaming the system by ranging through outright bribes to flatter to viscous verbal attacks to now criminal threats.
DOJ, SCOTUS, Congress and a long litany of international agreements have been replaced by his clownish Buffoonary so reminiscent of Il Duce and the acquiescence of the likes of Mitch McConnell, Mike Johnson, Pam Bondi, Kash Patel, John Thune, Pete Hegseth, Clarance, Alito and Roberts, and anyone who sat behind him at the inauguration, denied election results, contributed to the garish ballroom or have led organizations that have bowed to his demands like Larry and David Ellison. Killing America is a team sport and that team is well known by now and coached by Putin.
However, on occasion, there is someone so profound and resolute in their resistance that their normal quiet reserve shines like a lighthouse beacon to all amid the gathering g storm and rocky shores. That Jerome Hayden Powell, a slight reserved man of 72 is that lighthouse is remarkable. As a former lawyer, Investment Banker, Private Equity Manager and Treasury staffer Powell brings a real world depth to his day job. He is fortunate to be in an institution whereby the daily social media habits (akin to a catty teenager) are the means of dismissal of a Secretary of State.
Here stands a leader in Powell who is being tested not by market forces but rather by someone so clearly his intellectual inferior, someone so lacking in morals and integrity, someone so totally corrupted by power and self interest, and someone who’s ego has spun wildly out of control. Yeah, Trump, next to Powell, is a diminished, small, trite, cartoonish dilettante who uses the sacred Oval Office as a TV sound stage for his daily performance in his uniform and his overuse of hairspray and Makeup such that I bet it takes longer for Donald to get his Maybelline on than Melania.
But here we are. In May we will get a new Fed chair regardless, but; (1) the chair will only be one vote around the board table, (2) the Fed only directly affects one very short term and little used interest rate (Only about $3.4 billion is currently outstanding at the discount window), and (3) the rest of the yield curve, which is really what Trump cares about, is completely out of his control and subject market forces of which Fed policy impact is perhaps the most important.
The single greatest national security risk to the US is the ability to roll over and refinance the national debt. Let’s not forget that the total value of US Treasury marketable securities issued through auctions in 2025 was approximately $29.7 trillion.
So let’s also not forget, Jerome Powell is not fighting for his job, he is fighting for
for American economic supremacy and a stable platform from which the US economy can operate. He is the leader of the last critical US institution still standing!