Federal Reserve Chair Jerome Powell won praise for his deft leadership during the maelstrom of the pandemic recession. As threats to the U.S. economy have mounted, though, Powell has increasingly struck Fed watchers as much less sure-footed. Inflation has proved higher and far more persistent than he or the Fed’s staff economists had foreseen. And at a policy meeting last week, Powell announced an unusual last-minute switch to a bigger interest rate hike than he had previously signaled — and then followed with a news conference that many economists described as muddled and inconsistent. It’s been a sharp turnaround for Powell, who is widely credited with preventing what could have been a far worse economic crisis during the pandemic and who last month won an easy bipartisan Senate confirmation for a second four-year term. Now, as he confronts chronically high inflation, plunging financial markets and the growing threat of a recession, Powell is facing questions — and criticism — surrounding his stewardship of the Fed at a time when its challenges are multiplying. Thanks to a once-in-a-century pandemic, the first European war in decades and soaring gas and food prices that the Fed has limited power to affect, Powell could become the first Fed chair since Paul Volcker in the early 1980s to grapple with “stagflation,” a miserable combination of slow economic growth and high inflation. Struggling to curb the worst inflation outbreak in four decades, Powell last week engineered a three-quarters-of-a-point increase in the Fed’s short-term interest rate — the largest single rate hike in a quarter-century. It was an unexpectedly aggressive move after Powell had made clear a month earlier that a more modest half-point rate hike was coming. At his news conference, Powell defended the Fed’s decision by noting that the most recent inflation readings had been even more worrisome than expected. The Fed’s hike will make it more expensive for many consumers and businesses to borrow. Yet Powell’s explanation was faulted by many Fed watchers, with some complaining that he had failed to articulate a coherent and consistent policy. “The Fed was ad-libbing, scrambling to catch up to the painfully higher inflation,” said Mark Zandi, chief economist at Moody’s Analytics. “The Fed doesn’t have a script and is kind of making it up as it goes here.” William Dudley, who, as the former head of the Federal Reserve Bank of New York, served with Powell on the Fed’s Board of Governors, said on a think tank webcast last week that the central bank’s leader was putting its credibility at risk. “When the Fed changes their mind at the last minute like this,” Dudley said, “it does have the potential to undermine the credibility” of its critically important communications with markets and the public. As those criticisms echo, Powell will visit Capitol Hill this week to give his semi-annual testimony to House and Senate committees, where he could face tougher questions than at any other point in his tenure as Fed chair. He will testify one year after he stressed his confidence to Congress that inflation was temporary and would likely “wane.” It has not. In May, the government reported, consumer prices accelerated 8.6% from a year earlier. At his news conference last week, Powell said the Fed had been surprised by the latest figures, which have […]

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