The Martyrdom of Jerome Powell

January 26, 2026 | One of the unfortunate results of the incessant personal attacks on Federal Reserve Board Chairman Jerome Powell by the Trump Administration is that the Fed’s significant policy missteps since 2018 have been all but forgotten. St Jerome is revered in the Catholic Church for translating the Old Testament directly from Hebrew, but Chairman Powell is unlikely to have a similar legacy in the annals of the Federal Reserve Board.

As we told Bloomberg TV last week, not only has the President's attacks not forced Powell out, but he has made this decidedly mediocre Fed chief a progressive martyr. As a result of Trump’s ill-considered attacks, Powell will likely remain as a Governor through 2028, depriving the President of an opportunity to appoint another governor for a 14-year term.  How does this mess serve the agenda of President Trump?

Perhaps the single biggest error of the Powell FOMC was failing to consider the impact of massive purchases of Treasury and mortgage bonds (aka "quantitative easing" or QE) on the nation’s housing market and also on the central bank itself. But as readers of The Institutional Risk Analyst know very well, Powell actually started a massive easing program in January of 2019, a year before the onset of COVID and after the Fed's December 2018 fiasco managing liquidity in the money markets. 

The chart below shows the duration of all Ginnie Mae MBS between 2018 and 2024. Notice that the FOMC panicked at the end of December 2018 when the US money markets almost collapsed and began selling agency MBS forward in the TBA market to force down interest rates -- this a year before COVID began. Such was the scope of the December 2018 disaster that former Fed Chairs Janet Yellen and Ben Bernanke were forced to come to Powell's rescue in the media in January 2019.

LGNMMD Index

Source: Bloomberg

We wrote about Powell’s mismanagement of the liquidity in the US money markets in December 2018 (“Risks 2019: Quantitative Tightening, Eurobanks & China”):

“Just as quantitative easing expanded the US liquidity base, quantitative tightening or "QT" represents a structural decrease in liquidity.  As the Fed’s balance sheet contracts, there is a dollar-for-dollar decrease in liquidity because the Treasury is running a deficit. A bank deposit becomes a Treasury bill on the national balance sheet, illustrating why the Fed and Treasury are two faces of the same agency.  But the key point is that QT is beginning to impact markets and credit spreads.”

Officially, the Federal Reserve began conducting its fourth quantitative easing operation since the 2008 financial crisis on March 15, 2020. In response to the collapse of the US Treasury market due to the onset of COVID, it announced approximately $700 billion in new quantitative easing via asset purchases to support US liquidity in response to the COVID pandemic.

The Fed ultimately purchased over $4.6 trillion in net Treasury securities and agency mortgage-backed securities (MBS) through its quantitative easing program, which ran from early 2020 to early 2022.  This massive operation reflected the “go big” biases of both Powell and his predecessor, Janet Yellen, who years before had infamously tried (unsuccessfully) to manipulate long-term interest rates via “Operation Twist.” 

Operation Twist was an excursion into the world of economic fantasy and was primarily conducted by the Federal Reserve in two major periods: initially from 1961 to 1965 to combat a recession, and again from September 2011 through December 2012 to stimulate the economy following the 2008 financial crisis. It involves selling short-term Treasury securities and buying long-term ones to lower long-term interest rates. Both instances were unsuccessful.

The first iteration of Operation Twist was the brain child of James Tobin (1918-2002) of Yale University who served on the Council of Economic Advisers under President John Kennedy. And of course, Janet Yellen studied under Professor Tobin at Yale. More recently, then-Fed Vice Chairman Yellen was the intellectual author of Operation Twist II after 2008.

During her time as a Federal Reserve official, Yellen was a leading proponent of using unconventional monetary policies such as QE and a newer version of Operation Twist to "support the economy" during the aftermath of the 2008 financial crisis.  

In a very real sense, Chairman Powell continued the policies of Yellen and greatly expanded the Fed’s unconventional operations in the US money markets after 2020. These Fed policies had some initial utility, but were followed too much and for far too long. As a result, QE seen in total had limited or no economic value and profoundly negative political repercussions, this due to the surge of inflation caused by the vast expansion of the central bank’s balance sheet.

The Affordability Problem

The big result of Fed’s decision to go big with QE4 was forcing up home prices, an extraordinary development that has profound and continuing political consequences. U.S. home prices have surged significantly since early 2020, with national, seasonally adjusted, or median sales prices increasing by approximately 45% to 57% by late 2025. This rapid appreciation represents over a decade’s worth of growth in five years, driven by low supply and high demand caused by low interest rates.

Source: FHA/MBA

“Recent elections produced similar results in very dissimilar places,” writes Marilynne Robinson in the New York Review of Books (“At What Cost”).  “Commentators came up immediately with a word to summarize what lay behind this apparent like-mindedness among the voters of Mississippi, Utah, and New York City. The word is ‘affordability.’ It was popularized in the first place by Zohran Mamdani in his successful campaign to be mayor of New York City.”

The vast inflation caused by QE4 not only helped to carry Zohran Mamdani into the Mayor’s Office in New York, but it has shifted the political debate towards a focus on inflation that has not been seen in half a century. Whoever is chosen as the next Fed Chairman will need to reform the Federal Reserve Board and the staff when it comes to doing too much for too long in the name of neo-Keynesian stimulus. 

“The newly released 2020 FOMC material suggests that the Fed did not carefully consider the risks it took on when committing to continued sizable asset purchases long after financial markets had normalized,” writes Bill Nelson in his latest comment for Bank Policy Institute. Nelson:

“Unlike in the post-GFC period, explicit inflation contingencies were absent from both the rate and balance-sheet guidance, and staff analysis did not address the risks of falling behind the curve on inflation or the potential fiscal consequences.”

Not only did the excessive bond purchases under Powell cause home prices in the US to skyrocket, but the mismanagement of the Fed’s balance sheet cost the US Treasury hundreds of billions in lost remittances from the central bank. Starting under Ben Bernanke, the Fed used QE to expropriate the assets of the Treasury without congressional authority and proceeded to lose hundreds of billions of dollars on their speculations! 

The Fed under Powell also mismanaged the central bank’s assets and liabilities – essentially a tax in disguise, as our friend Alex Pollock noted last year (“Interview: Alex Pollock on the Fed and Gold | Part I”). Again Nelson:

“Although the Fed has now returned to profitability, it has lost a phenomenal amount of money, hundreds of billions of dollars, because of the massive interest rate risk it took during the Covid-era QE 4.  These are real losses borne by all of us and our children (unless you are reading this abroad).  Those losses, of course, need to be weighed against the benefits of QE 4… The decisions the Fed made that contributed to its losses, how it crafted its forward guidance and its preference for finishing its asset purchases before raising the funds rate, also increased the risk the Fed took of falling behind the curve on inflation.”

There are many reasons why President Trump and the national Congress should be critical of the Fed under first Janet Yellen and then Jerome Powell.  President Trump's clumsy approach to managing the relationship with Powell, however, risks deflecting attention from Powell's poor record as Fed Chairman and instead turning him into a strange form of 21st Century political martyr.

"Don’t martyr Jay Powell," writes Larry Kudlow. "He was a terrible Fed chairman, but he’s not a criminal. Over his tenure, he consistently missed the Fed’s inflation targets with the worst price hikes in 40 years. He was the most political Fed chairman in memory."

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