The Fed Must Resist Repeating Past Mistakes

It’s easy to think that the Jerome Powell-led Federal Reserve has been one of the unluckiest on record. From the 2020 pandemic and its messy aftermath to the current tariff-induced economic and financial volatility, it has faced one big external shock after the other. Powell has had repeated run-ins with President Donald Trump, lost key officials over insider trading allegations, seen the institution’s credibility eroded by the misguided 2021 transitory inflation judgement, and more.

Yet what has made this bad luck worse and more consequential for overall economic wellbeing is that it has interacted with self-created weaknesses. Unlike other Feds, those have extended to analysis, forecasts, communication, and policy responses, repeated missteps that were aggravated by a distinct lack of humility and learning. The result is a Fed whose political independence and market credibility are as shaky as they have been since the late 1970s and early 1980s. And that is bad news for a central bank that, in the next few months, will face difficult policy judgements. It’s also bad news for the world’s largest economy that has lost other anchors and is suffering its own period of instability at the center of the global economic and financial order.