Powell’s “Historical Crimes”! The Federal Reserve releases records of the September 2020 meeting, revealing Powell’s push for the Fed to tolerate higher inflation.

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The records of the Federal Reserve’s 2020 policy meeting, made public on Friday, reveal that Powell had forcefully pushed for a key decision he later admitted regretting. These long-sealed five-year-old records show how the Fed made its interest rate guidance commitment during the pandemic—a commitment many critics believe became a crucial reason for the Fed’s slow response to surging inflation.

The minutes of the September 2020 meeting indicate that Powell strongly advocated for robust and specific forward guidance, clearly stating that the Fed would keep rates near zero until the labor market reached full employment and inflation had risen to 2% and was on track to moderately exceed that level for some time. Despite objections from several colleagues, Powell won the debate.

This commitment ultimately became a shackle in the Fed’s response to inflation. At the time, the Fed predicted that inflation would only reach 2% by 2023, but in fact, inflation started to soar the following year, peaking at 7.2% by mid-2022. Many Fed officials, including Powell himself, viewed inflation as "transitory" at the time, and delayed raising interest rates in response.

Powell acknowledged this mistake at a Brookings Institution event in November 2022. He said, “There was one part of our forward guidance I probably wouldn’t do again: that we said we wouldn’t raise rates unless we saw both full employment and price stability. I don’t think I’d do that again.”

Powell Pushes Through Strong Commitment Against Opposition

The meeting records show that Powell explicitly expressed the need for immediate action at the September 2020 meeting and was unwilling to wait.

At the meeting Powell stated:

With the economic recovery well underway, now is the time to shift our policy and communication focus to supporting the economy through the long road to full recovery. I don’t think there’s any need to wait further, and I’m glad we had six months of watching and waiting—I think that was wise. But we’re still far from our goal, and further delay could damage the credibility we’ve already built.

Powell was also concerned that without stronger forward guidance, outsiders would perceive the Fed as not truly implementing its new policy framework. A month before the meeting, the Fed had just announced a historic adjustment to its monetary policy strategy framework, effectively abandoning decades of practice—namely, raising rates preemptively when unemployment was deemed too low to ward off inflationary pressures.

“It’s easy to get back to the situation where people say ‘there’s nothing new here.’ In fact, that’s already happening. People are talking about it now. So I think this is important,” Powell told his colleagues. “A much watered-down forward guidance, in my opinion, would sound very much like the reaction function we’ve used for the past eight years.”

Internal Dissent Suppressed

The meeting records reveal that several Fed officials had reservations about the strong commitment, but in the end did not publicly express opposition.

In the official vote, then Dallas Fed President Rob Kaplan and Minneapolis Fed President Neel Kashkari cast dissenting votes. Kaplan did not want such a strong commitment to near-zero rates, while Kashkari argued for an even stronger commitment.

However, the records show that there were several other policymakers—who at the time did not have voting rights—who at least somewhat shared Kaplan’s concerns. This group included then Boston Fed President Eric Rosengren, Richmond Fed President Tom Barkin, and Atlanta Fed President Raphael Bostic. Then Philadelphia Fed President Patrick Harker and Cleveland Fed President Loretta Mester, who had voting rights, also expressed concerns but ultimately supported the decision.

Mester believed that the change in the rate-hike threshold was highly significant. She said, “I would have preferred to wait until the committee had a chance to fully discuss the implications of this commitment before making such a change.”

Decision Consequences and Inflation Out of Control

The consequences of this forward guidance emerged in the following two years. In September 2020, the Fed’s preferred inflation gauge was at 1.3%, and policymakers’ median forecast was that inflation would not reach 2% until 2023. But inflation began to surge the following year and reached a peak of 7.2% in mid-2022.

The Fed did not start raising interest rates until March 2022, when inflation had already exceeded its target for several months. Many critics believe that the strong commitment made in September 2020 was one of the key reasons the Fed was slow to act.

The Fed releases edited minutes of each policy meeting three weeks later, but the full records are not published until five years have passed. The newly public records from 2020 provide new perspective on understanding the Fed’s key decisions during the pandemic.

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