The question now is whether Powell’s continued presence at the Fed will further inflame tensions between the administra- tion and the central bank
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Chairman of the US Federal Reserve Jerome Powell | Image Credit: Bloomberg
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Over the past year, Jerome H Powell has frequently said that the Federal Reserve faced “no risk-free paths” as it con- fronted a series of economic shocks that simultaneously lifted inflation while denting growth.
The same could be said for his momentous decision to stay on at the Fed as a governor after his term as Fed chair ends May 15. In choosing to stay, Powell used the one tool of leverage he had left to push back on an administration that has aggressively attacked the central bank for its refusal to bend to the president’s demands for lower interest rates.
Unless another Fed governor departs, Trump will not have another vacancy to fill until Powell’s term ends in January 2028, stymying the president’s plans to get more of his supporters on the power- ful Board of Governors.
The move, which Powell announced on Wednesday at his final news confer- ence after eight years as chair, drew an immediate rebuke from the administration. Trump quipped that Powell was staying because “he can’t get a job anywhere else — Nobody wants him.” Scott Bessent, the Treasury secretary, called Powell’s decision a “violation of all Fed- eral Reserve norms.”
The question now is whether Powell’s continued presence at the Fed will further inflame tensions between the administra- tion and the central bank. Weeks before Powell announced his decision, Trump threatened to fire him if he did not resign after his term as chair ended. “This could still go sideways, and if it does, some people will point to Powell staying as a provocation,” said Claudia Sahm, a former forecaster at the Fed who is now the chief economist at New Century Advisors.
“Stay or go, there are risks on either side of this.” Powell made clear on Wednesday that he wanted nothing more than to leave the Fed.
Yet he said he had “no choice” but to stay and guard against further encroachments on the institution where he has served for nearly 14 years, first as a governor and then as chair.
The last time a chair whose term had expired stayed on as a governor was in 1948. “I’m literally staying because of the actions that have been taken,” Mr. Powell said when asked about whether his deci- sion would be viewed as a political act. “I have long planned to be retiring.”
The decision had nothing to do with Kevin M Warsh, Trump’s pick to replace him as chair, Powell stressed on Wednes- day. He said he took Warsh at his word that he would stand up to political pressure from the president.
Powell also vowed to keep a “low profile as a gov- ernor,” despite retaining a vote on decisions around rates and other policies. William Dudley, who previously was the president of the Federal Reserve Bank of New York, said he expected Pow- ell to stay relatively quiet and embrace a “one man, one vote” approach.
Powell spent much of his news con- ference explaining that his decision to stay rested on a belief that the central bank’s independence was fundamen- tally “at risk” amid a litany of legal threats that were far from over.
“These legal actions by the administra- tion are unprecedented in our 113-year his- tory, and there are ongoing threats of additional such actions,” he said.
“I worry that these attacks are battering the institu- tion and putting at risk the thing that really matters to the public, which is the ability to conduct monetary policy without taking into consideration political factors.”
Top of mind for Powell is a criminal investigation that the Justice Depart- ment began against the Fed regarding renovations to its headquarters in Washington and whether he lied to Congress about the plans. Federal prosecutors dropped the inquiry on Friday, but main- tained that they could reopen it at any point. It is also unclear whether they will appeal a federal judge’s recent ruling that quashed subpoenas issued to the central bank. For now, the Fed’s inspector gen- eral is looking into the renovation, an inquest Mr. Powell requested in July.
Powell has long stipulated that he would not leave the Fed until the Justice Department’s investigation was “well and truly over, with finality and transparency.” But a mounting concern is whether Trump will now use the allega- tions leveled in the investigation to try to fire Powell, having already accused him of “incompetence” and questioned whether he committed fraud.
A president can remove a Fed official only for cause, which is interpreted by legal experts to mean gross misconduct or a dereliction of duty. The issue is being debated by the Supreme Court after the president’s attempt to fire Lisa D Cook, a governor, in August.
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