(Bloomberg) -- Just as the Federal Reserve was about to talk up its commitment to taming the hottest inflation in almost 40 years, a top U.S. banking leader delivered an unusually brusque critique of the central bank.  

Goldman Sachs Group Inc. President John Waldron said the independence of the Fed has been damaged in recent years and that it’s lost credibility in markets, as he offered a blunt assessment to pension fund managers.

What’s gone on in the past couple of years has brought “into question the independence of the Fed,” Waldron said hours before the Fed’s meeting Wednesday. He questioned the Fed’s strength to act as an “independent, monetary policy engine that is doing what it thinks is right and not what’s expedient.”

“They have a chance here to do that, but I am a little worried about whether they’ll stand up and do it,” Waldron said at a virtual meeting of the New Jersey State Investment Council, where he was a speaker.

That’s a rare jab by a top U.S. banking executive at the industry’s top overseer, reflecting the growing pressures on the Fed as it seeks to combat inflation that’s taken off amid the Covid-19 pandemic. On Wednesday, Jerome Powell pledged that the central bank is going to do what’s needed to slow rising prices.

Waldron, known for years as the banker to the Murdochs, was responding to a question about whether the Fed will be able to continue making rate hikes and balance-sheet reductions even if markets rebel. He added that he realized his answer risked politicizing the issue. 

While rate hikes are interesting and relevant, the executive said, what really matters is the ability and willingness to trim its balance sheet that has more than doubled in the last two years to almost $9 trillion.

“I’m not entirely convinced the Fed has the will to do it,” he said, adding that bond traders share his view. “I’m not sure they believe the Fed has the will either.”

In airing doubts about the Fed’s autonomy, Waldron has resurfaced concerns that popped up during Donald Trump’s term as president. Trump frequently used his White House pulpit and social media prowess to publicly call on the Fed to push more money into the economy, including advocating for negative rates -- a measure that Powell, a Trump appointee, resisted.

Last week, President Joe Biden said it’s the Fed’s job to rein in the fastest pace of inflation in decades and that he supports the central bank’s plans to scale back monetary stimulus.

Waldron blamed Fed policies for the growing divergence in the fortunes of the rich and the poor, saying that those who already had wealth benefited by the monetary actions over the last decade. “Central bank policy has exacerbated inequality,” he said.

The Fed has also been facing growing political blowback from legislators who railed against what they see as mission creep outside of the Fed’s narrow statutory mandates, including on issues like climate and racial justice.

Bring Back Volcker

For now, the central bank appears consumed by the need to tame rising inflation. The difference between the Fed benchmark rate, at near-zero, and a key gauge of inflation, which reached 7% in December, is the most negative since the 1970s. By that measure, it’s the loosest monetary policy in more than four decades.

Waldron’s solution goes almost that far back to fix what he sees as more recent missteps.

He pointed to Paul Volcker, who led the Fed’s brute-force campaign against inflation in the late 1970s and early 1980s. Back then, the Fed raised interest rates by several percentage points in one go, leading to some of the fiercest public protests and political critiques of the central bank in its history. But, ultimately, the policies were widely credited with stabilizing the U.S. economy.

“We might need to bring back Paul Volcker,” Waldron said. “And have somebody that would be willing to kind of stay the course without regard to exactly what’s going on in the markets.”

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