Jerome Powell’s last stand: Balancing a tricky economy and intense political pressure

Fed chief is making a risky gambit, cutting rates even though the economy isn’t flashing red

- Nick Timiraos

When the Federal Reserve cut interest rates Wednesday , it looked like routine monetary _ policy.

Markets largely shrugged, and Chair Jerome Powell mostly avoided acrimonious dissents over a decision that came amid unprecedented political confrontation.

The pivot he began with Wednesday’s reduction might represent Powell's last stand to prove an independent U.S. central bank can navigate complex crosscurrents before appointees more aligned with President Trump’s priorities assume greater control. Powell's term as chair ends in the spring.

For the third time in his tenure, Powell is attempting the delicate maneuver of cutting rates not because a recession appears imminent, but rather to prevent one. His 2019 effort was interrupted by the pandemic before its effectiveness could be judged. Last year, the labor market steadied itself, but a decline in inflation stalled this year amid rising prices that could reflect the effects of large tariff increases by Trump.

The upshot is that this is a riskier calculation. The Fed is navigating an extraordinary challenge to its traditional independence on top of both weaker growth and sticky inflation that didn’t complicate those other episodes.

History offers three potential outcomes for Powell’s gambit. In the mid-1990s, the Fed successfully engineered a “soft landing” by dialing back rate hikes and extending economic expansion without igniting inflation—the holy grail every Fed chair seeks to replicate.

In 1967, premature cuts helped kindle the persistent price pressures of the 1970s that were exacerbated by political pressure and a misdiagnosis of economic conditions.

And in 1990, 2001 and 2007, cuts weren't able to prevent recession.