Jerome Powell's eight-year tenure as chair of the Federal Reserve — the United States' central banking system, which sets interest rates and helps guide the broader economy — came to an end this week, closing a chapter that economists are already calling one of the most consequential and politically fraught in the institution's history. Powell, 73, will continue serving on the Fed's governing board, a decision he said he is maintaining until he is confident the central bank's independence is fully secure. Kevin Warsh, a former Fed governor, Morgan Stanley executive, and economic adviser to President George W. Bush, has been confirmed by the Senate to succeed him.

Powell's legacy is defined by two towering achievements, one serious misstep, and an extraordinary test of institutional character. On the positive side, his swift and creative action at the outset of the COVID-19 pandemic — slashing interest rates and supporting emergency lending programmes — is widely credited with preventing a full-scale financial crisis. He then overcame the resulting inflation surge, which peaked at a four-decade high of 9.1% in June 2022, by overseeing the sharpest interest rate increases since the early 1980s. Crucially, that tightening cycle brought inflation down to around 2.3% by late 2024 without triggering the recession many economists had feared — what central bankers call a "soft landing." Overall consumer prices are nonetheless around 27% higher than before the pandemic, a lasting burden on household budgets. The clear blemish on Powell's record is the Fed's delayed response to rising prices in 2021, when officials — along with most mainstream economists — insisted inflation was "transitory." The central bank kept its key rate near zero until March 2022, even as price growth accelerated well above its 2% target. Critics argue the Fed badly misread the combined impact of massive government stimulus and ongoing supply-chain disruptions. Defenders counter that even earlier rate rises would not have prevented most of the inflation, given those external forces, and note that when the Fed did move, it acted more aggressively than almost anyone had recommended.

Beyond the economic record, many analysts argue that Powell's most durable contribution was defending the Fed's independence under unprecedented political pressure. President Donald Trump — who originally nominated Powell in 2017 — subjected him to sustained public attacks, calling him a "loser" and an "enemy of the United States," and the Justice Department launched an investigation widely seen as politically motivated. Powell pushed back and refused to be driven out, meeting regularly with senators from both parties to shore up congressional support. "He is the person who stood up to the most intense bullying the Fed has ever experienced and left the Fed even stronger and more independent than when he walked in," said Jason Furman, a professor at Harvard's Kennedy School and former chairman of the Council of Economic Advisers. Economists argue that central bank independence is among the most valuable features a modern economy can have, allowing difficult decisions — like raising borrowing costs in an election year — to be made on technical rather than political grounds.

Warsh now inherits a deeply uncomfortable position. Inflation is rising again, pushed higher by Trump's sweeping tariffs and the economic disruption of a conflict involving Iran, with the consumer price index running at 3.8% annually as of April — well above the Fed's 2% target. Wholesale inflation, which often feeds through to consumer prices, rose 1.4% in April alone. Most market analysts no longer expect rate cuts this year, with major banks pushing their forecasts to mid-2026 at the earliest. Yet Trump has publicly demanded lower rates, and Warsh's shift in recent statements — from his earlier reputation as an inflation hawk to advocacy for lower borrowing costs — has fuelled market speculation about whether he will act independently. Philip Marey, an Americas economist at Dutch bank Rabobank, described Warsh's situation as "tightrope walking": move toward cuts without solid economic justification, and financial markets will notice immediately. The stakes are high. If investors come to believe the Fed is a political tool rather than an independent stabiliser, the cost of borrowing for the US government — already carrying nearly $39 trillion in national debt — could rise sharply. "In the 1970s, Fed chair Arthur Burns deferred to President Nixon," Marey noted. "Paul Volcker ultimately had to drag the American economy out of recession twice. That is the risk we are running again."

Warsh has also signalled ambitions to reshape the Fed's roughly $6.5 trillion balance sheet — built up through bond-buying programmes during the financial crisis and the pandemic — shrinking it more quickly than Powell did. He has also floated changes to how the Fed measures inflation and communicates its decisions to the public. Analysts caution that such reforms, however significant in the long run, are unlikely to alter near-term policy while inflation remains elevated. "The overall inflation picture, no matter how you look at it, is not screaming for a rate cut right now," said Mark Spindel, founder of Potomac River Capital, a Washington-based investment firm. Powell, meanwhile, exits with his reputation largely intact among economists, even those who fault specific decisions. "It is not an unblemished record," said David Wilcox of the Peterson Institute for International Economics, "but in an extremely challenging context, he performed exceedingly well."