Jerome Powell, chairman of the Federal Reserve

LIKE ANY good central banker, Jerome Powell is a study in caution when he speaks publicly, choosing each word with the knowledge that even hints of optimism or pessimism can whip up a frenzy in financial markets. But his rhetorical restraint should not be mistaken for a lack of courage or boldness in his piloting of the Federal Reserve through great turbulence. He is now entering the final phase of his chairmanship of the central bank, with one big piece of unfinished monetary business and one big political worry clouding the horizon.

At a symposium in Jackson Hole, an annual jamboree of central bankers from around the globe, Mr Powell delivered a closely watched speech on August 23rd that directly touched on his unfinished business: namely, when the Fed will start cutting interest rates and whether it will be able to do so before America slides into a recession. “The time has come for policy to adjust,” he said, arguing that, with the right amount of monetary easing, the labour market will remain strong even as inflation comes down. If the economy does make a soft landing, historians will surely look favourably upon Mr Powell’s chairmanship.

That seemed extremely improbable two years ago, when, after responding decisively to the economic fallout from the covid-19 pandemic, the Fed stumbled. In 2021 as inflation gathered pace, Mr Powell and his colleagues were complacent, assuming that price pressures would fade as the world got over covid-19. But as their error became evident, Mr Powell moved quickly to correct it. By July of 2023 the Fed’s monetary committee had raised interest rates from a floor of 0% to 5.25%—its most aggressive course of policy tightening since the early 1980s.

Outside the Fed, controversy raged. Critics, especially Republican lawmakers, upbraided Mr Powell for the original sin of letting inflation run rampant. Democrats, particularly those from the party’s left, warned that he was now making the opposite mistake in turning excessively hawkish, and that he would drive the economy into recession. Inside the Fed, though, Mr Powell brought opposing viewpoints together, persuading more doveish members of the monetary-policy committee to vote for steep rate increases. And through all the public questioning, whether in congressional hearings or at the Fed’s regular press conferences, Mr Powell answered in his customary way: with pursed lips, betraying little emotion when facing criticism; and then with patient explanation of what the Fed was doing, always offering a sliver of hope. There was a path to a soft landing, he said, but it was a narrow one.

Communication has long been one of Mr Powell’s distinguishing features at the Fed. Unlike his three immediate predecessors, he does not hold a doctorate in economics. He is a lawyer and a private-equity man, with a deep understanding of finance and deal-making. Rather than offering the abstruse reflections of Alan Greenspan or the academic-inflected reasoning of Janet Yellen or Ben Bernanke, he talks more in layman’s terms, though he is well-versed in the research of the Fed’s formidable team of economists. He is also comfortable on Capitol Hill, regularly meeting lawmakers from both sides of the aisle to discuss the economy and monetary policy. He is a rare blend, with a patrician upbringing in Washington, DC’s affluent Chevy Chase neighbourhood and a preparatory-school education, combined with a folksy touch. In the summer of 2023, after being photographed at a Dead & Company concert, he fessed up to having been a fan of the Grateful Dead, a hippie-rock band with a cult following of “Deadheads”, for 50 years.

Mr Powell has tried to make the Fed more transparent to ordinary Americans. In a series called “Fed Listens”, launched in 2019, he and his colleagues travel around the country for talks with a range of people—small-business owners, union members, retired people and so on—to hear their views on the economy. Quietly, it is also Mr Powell’s attempt to make the Fed more visible at a time when trust in institutions is low, although the central bank is supposed to be unswayed by the vicissitudes of public opinion.

Indeed, rising threats to Fed independence are personal for Mr Powell. He started his chairmanship in awkward fashion. Custom would have seen Ms Yellen serve another four years at the Fed’s helm but in 2017 Mr Trump dumped her. He did not think that she (a short grandmotherly figure) looked the part, nor did he appreciate it that she did not share his deregulatory zeal. Better Powell with his neat silver hair, sleek suits and clipped tones.

Before long, though, Mr Trump turned on him. When Mr Powell continued where Ms Yellen had left off by nudging rates up, Mr Trump expressed displeasure and, eventually, contempt. “My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?” Mr Trump tweeted in 2019. Mr Powell never took the bait. When pressed about the unprecedented attacks from the White House, his pat response was that the Fed was independent and did not consider politics in its decisions.

If Mr Trump retakes the White House, the Fed is sure to face another wave of attacks. The former and possibly future president insists that he wants to have a say on rate decisions—something that no Fed chairman could allow. For a year it would be up to Mr Powell to hold the line, since his term leading the central bank ends in mid-2026. Endless insults and threats from Mr Trump may well upset financial markets but not Mr Powell. He will stay as calm and steady as ever.■