Macro strategist Craig Shapiro delivered a scathing critique of Fed Chair Jerome Powell’s performance over the years, pushing back against the growing narrative that casts his tenure in a positive light.
What Happened: On Sunday, in a post on X, Shapiro argued that the Federal Reserve under Powell had strayed from its core mission of serving the public.
He says, “It [the Fed] has stopped fighting inflation, deepened inequality, and quietly handed monetary control back to the U.S. Treasury, all without saying a word.”
Shapiro accused Powell of adopting an unofficial third mandate focused on protecting capital markets, stabilizing Treasury auctions, and avoiding disruption to asset valuations. “Inflation targeting and full employment now come second, or not at all,” he said.
He also questioned the credibility of the Fed's quantitative tightening efforts, calling them largely symbolic. “QT was never real,” he wrote. “The balance sheet remained enormous. Liquidity stayed plentiful. Financial conditions eased even as rate hikes continued.”
The thread highlighted the persistent gap between official inflation targets and outcomes. Since 2021, core PCE inflation has averaged 4.1%, twice the Fed's 2% goal. The thread also quotes Powell’s messaging in this regard, where he admitted, “We now understand better how little we understand about inflation.”
However, Shapiro believes this wasn’t just a policy misjudgment, but a failure of resolve. “The real problem wasn't [a] misunderstanding, it was cowardice,” he says.
On wealth inequality, Shapiro pointed to what he refers to as a “regressive monetary tax,” saying that “the top 1% added $13 trillion in net worth since 2020… This isn't a side effect. It's the blueprint.”
Shapiro also pushed back against Powell’s passive posturing against the Treasury’s increasing reliance on short-term debt, which reflects a return to "fiscal dominance" and a quiet reversal of the 1951 Fed-Treasury Accord, which restored the Fed’s independence.
“While inflation persisted, the Treasury began funding itself with short-term bills. Instead of counterbalancing that risk, Powell deferred. The Fed let [the] Treasury dictate monetary conditions. This is the return of fiscal dominance,” he says.
Why It Matters: Early this year, Charles Gasparino had criticized former Treasury Secretary Janet Yellen for rolling over short-term debt instead of issuing longer-duration bonds. A move he says “masked the severity” of the federal deficit problem while potentially setting up a crisis for the incoming administration.
Last week, Shapiro echoed similar views, with President Donald Trump suggesting the same ‘bills over bonds’ strategy in a bid to avoid the high interest rates in longer-duration Treasury notes.
Even a few months ago, Shapiro had called out the Federal Reserve for “gaslighting the public” into thinking that inflation expectations were still well anchored, referring to the Fed’s efforts at intentionally downplaying the seriousness of inflation, to convince the public that things are under control.
As tensions continue to escalate between Trump and Powell, economist Kenneth Rogoff warned recently that the Fed’s independence is a relatively new construct, and that “it could disappear in a week.”
Rogoff said, “I think there'll be pressures… they'll pack the central bank with people who we call doves. It hasn't happened, but you know, it could. Obviously, we have Trump here, and he has said he thinks he's smarter than the central bankers.”
Price Action: The 10-Year U.S. Treasury note currently trades at 4.332%, whereas the 5-Year and 2-Year notes trade at 3.915% and 3.861%, respectively.
Photo courtesy: Domenico Fornas / Shutterstock.com
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