It was Dec. 18, 2018, and the Federal Reserve had just raised interest rates for the fourth time that year — defying President Donald Trump, who’d warned them against such a move. Stocks plunged after an already rocky month caused by jitters about the Fed and Trump’s trade wars.
Within days, Trump was privately discussing firing his Fed chair, Jerome Powell, and a report to that effect caused markets to panic even more. Then-Treasury Secretary Steven Mnuchin aimed to calm the situation by tweeting a statement from the president that Trump wouldn’t try to remove the central bank chief. But the uncertainty continued through a stressful Christmas.
Ultimately, investors breathed a sigh of relief when morning dawned on Dec. 26, and markets opened with Powell still in place. Stocks shot up roughly 5 percent.
But then something else happened: Powell heeded the investor reaction to the rate move and the apparent dismay at his suggestion that he was not worried by turmoil in markets. Just days later — on Jan. 4, 2019 — he said at a conference in Atlanta that the Fed was “listening carefully” to the warning from the markets, adding: “We will be patient as we watch to see how the economy evolves.”
The Fed hit pause on further rate hikes, and ultimately cut them a few times later that year.
The nickname of “Too Late” Powell, bestowed by a president who hated him, will always be tied to the outgoing Fed chair.
Yet an underrated aspect of Powell’s legacy is how he pivoted in key moments when there was evidence that the Fed needed to change course. As a result, the central bank under his leadership never caused a recession — a notable feat given the varied economic dilemmas he experienced during his tenure.
Powell also switched to raising rates in reaction to an inflation surge in the wake of the Covid pandemic, after it became clear that the Fed’s working theory — that inflation would fade — was wrong. Inflation peaked in June 2022 at a four-decade high of about 9 percent, but the central bank brought it back below 3 percent without a significant rise in joblessness. A so-called soft landing.
Too late? More like, better late than never.
It’s a lesson for incoming Chair Kevin Warsh, who will be taking the baton from Powell. He may soon have to judge how long is too long to wait before raising interest rates because of the war in Iran, if the recent spike in inflation persists.
The potential to be too late is an occupational hazard for a central bank chief, given the unpredictability of the U.S. economy and global events. Often their best hope is to minimize mistakes and stay humble.
“He dealt with a lot of stuff,” Norbert Michel, a vice president at the libertarian-leaning Cato Institute, said of Powell. “Most of the time, everyone was scared that everything was gonna go straight to hell, and it never really did.”
That might be a high bar for Warsh to clear. The new chair is immediately inheriting a policy quagmire of his own, with peril in multiple directions. The war in the Middle East has led inflation to surge over the last three months to an annualized rate above 7 percent. But the Fed’s role here is not straightforward; no number of rate hikes will increase the flow of oil through the Strait of Hormuz.
At the same time, the rise in inflation is not coming exclusively from the cost of energy. Prices in the services sector beyond housing — a category covering all manner of expenses, from dentists to auto repair — have also been climbing faster than the Fed wants. That dynamic suggests at least part of the problem could be solved if the central bank raised rates to tamp down on economic activity.
The Fed’s dilemma could get tougher in other ways: Market-set interest rates — which the Fed doesn’t directly control — have already risen as investors anticipate price spikes will actually last quite a while. Meanwhile, there’s a difference between the nominal rate the Fed sets and its practical, inflation-adjusted effect. That is, if inflation goes up, but the Fed keeps its rate the same, it’s basically easing up on the economy, so it might have to hike rates just to avoid changing its policy stance.
And yet, the rise in the price of gas and other goods tied to the cost of oil will continue to squeeze both households and businesses. That could eventually mean less money left over to sustain inflation in other sectors, perhaps leading to a slowdown on its own.
A few more months of the Iran conflict really could trigger a recession. And that could present Warsh with another set of no-easy-win options.
You get the idea: The Fed, unable to predict the future, might end up making the wrong decision here because these things are hard. And for Warsh, it’s more difficult because Trump expects rate cuts.
“It’s always easy, ex post, to say it was a mistake, but when you’re there in real time, you do have limited information,” former Cleveland Fed President Loretta Mester told me about monetary policy decisions. “You could be wrong about the current state of the economy, and then you’re trying to project that out and manage the risk.”
“What’s incumbent on the [rate-setting] committee to do is to ensure that policy remains in a good place to ensure it can move in one direction or another, and not put all your eggs on one particular path that the economy could take,” she added.
Powell and his colleagues dealt with a similar dilemma last year as they tried to assess how sweeping global tariffs would affect prices and growth. After spending much of 2025 holding rates steady as they watched Trump’s trade wars play out, they ultimately had to make a decision about which version of the future was most likely.
They decided they could cut three times late that year, after Powell argued at the Fed’s annual August conference in Jackson Hole, Wyoming, that it was reasonable to assume import duties would only lead to one-time price increases, rather than the kind of sustained inflation that would call for Fed action. The greater danger, he concluded, was a labor market slowdown.
It was essentially what the Trump administration wanted to hear.
But the verdict on whether that will prove true is still out, as tariff rates remain in flux. Warsh will inherit that ongoing adjustment process, too.
Trump once said that being Fed chair is “the greatest job in government.”
“You show up to the office once a month, and you say, ‘let’s see,’ flip a coin, and everybody talks about you like you’re a god,” then-GOP nominee Trump said in 2024.
Unfortunately for Warsh, there’s a bit more to it than that.