Christopher Rugaber
Updated ,first published
Jerome Powell said he plans to remain on the board of the Federal Reserve after his term as chair ends next month โfor an undetermined period of time,โ saying the โunprecedentedโ legal attacks by the Trump administration have put the independence of the nationโs central bank at risk.
โI worry these attacks are battering this institution and putting at risk the things that really matter to the public,โ Powell said in remarks at a press conference after the Fed announced its decision to keep its benchmark interest rate unchanged.
Powellโs decision to stay โ the first time a Fed chair will remain on the board as a governor since 1948 โ denies President Donald Trump a chance to fill a seat on the central bankโs seven-member governing board with his own appointee. The Senate Banking Committee earlier approved Powellโs successor as chair, Trump appointee Kevin Warsh, on a party-line vote. Powell will continue as a Fed governor, possibly until January 2028. Warsh, if confirmed, will take a seat currently held by Stephen Miran, a previous Trump appointee, whose term ended in January.
Powellโs move could make it a bit harder for Warsh to engineer the rate cuts that Trump has demanded, and Warsh advocated for last year, economists say.
โIt probably means it will take Warsh a little bit longer to build the consensus he is trying to build,โ said David Seif, chief economist for developed markets at Nomura, an investment bank.
US Attorney for the District of Columbia Jeanine Pirro said on X Friday that her office was ending its probe into the Fedโs extensive building renovations because the Fedโs inspector general would scrutinise them instead. But she added that her office could reopen the investigation if โthe facts warrant doing so.โ
Apparently that didnโt bring Powell the closure he felt is needed.
โIโm waiting for the investigation to be well and truly over with finality and transparency,โ he said. โIโm waiting for that and I will leave when I think it appropriate to do so.โ
The Fed Wednesday left its benchmark interest rate unchanged for the third straight meeting but signalled it could still cut rates in the coming months, moves that attracted the most dissents since October 1992. Three officials dissented in favour of removing the reference to a future cut, while a fourth, Miran, dissented in favour of an immediate rate cut.
The dissents underscore the level of division on the Fedโs 12-member rate-setting committee ahead of the end of Powellโs term as chair on May 15.
โDevelopments in the Middle East are contributing to a high level of uncertainty about the economic outlook,โ the Fed said in a statement after its two-day meeting. โInflation is elevated, in part reflecting the recent increase in global energy prices.โ
Warsh has promised โregime changeโ at the central bank and may make sweeping changes to its economic models, communications strategies, and balance sheet. He has argued in favour of rate cuts, as Trump has demanded, but he will likely find it harder to implement them with inflation topping 3 per cent, above the Fedโs target of 2 per cent.
When asked if he believed Warsh would stand up to political pressure from Trump, Powell answered, โHe testified very strongly at his hearing, and I take him at his word.โ
The three officials who dissented against hinting that the Fed may reduce borrowing costs were Beth Hammack, president of the Federal Reserve Bank of Cleveland; Neel Kashkari, president of the Minneapolis Fed; and Lorie Logan, president of the Dallas Fed. The regional Fed bank presidents have historically been more likely to dissent, while the Washington-based governors more often support the chair.
โI worry these attacks are battering this institution and putting at risk the things that really matter to the public.โ
Fed chair Jerome Powell
The dissents could renew tension between the Trump administration and the bank presidents, who White House officials have previously criticised.
Beth Ann Bovino, chief economist at US Bank, said the dissents demonstrated that Fed policymakers are โvery independentโ and will likely be on hold for months longer. She has forecast a rate cut in December but now isnโt sure. Wall Street investors on average donโt expect a reduction until well into next year, according to futures pricing.
Powellโs decision to stay on could worsen tensions with the Trump administration and would create what some analysts refer to as a โtwo Popesโ scenario, with a chair and former chair both on the Fedโs board. In that case, divisions among policymakers could increase, if some decided to follow Powellโs lead rather than Warshโs.
Powell dismissed the notion that his staying on could cause dissension, saying, โMy intention is not to interfere,โ later adding that, โIโm not looking to be a high-profile dissident or anything like that.โ
Still, Powell said he remained concerned about the Fedโs independence from the White House, which he said is essential to its ability to set rates to benefit the public, rather than in response to political pressure. When the Fed raises or cuts its short-term rate, over time it affects the cost of mortgages, auto loans, and business borrowing.
Fed independence remains โat risk,โ he said. โWeโre having to resort to the courts to enforce our … ability to make monetary policy without political considerations. Weโve had to do that and weโve been successful so far, but thatโs not over, none of that has concluded yet.โ
The unusual situation comes while the economic picture remains unusually murky, putting the Fed in a difficult spot. Inflation has jumped to 3.3 per cent, a two-year high, as the war has sharply raised gas prices. That makes it harder for the central bank to reduce rates. The Fed typically leaves rates unchanged, or even raises them, if inflation is worsening.
At the same time, hiring has ground almost to a halt, leaving those without jobs frustrated by the difficulty of finding new ones. Typically, the Fed cuts rates when the job market is weak, to spur more spending and job gains.
But layoffs also remain low, as employers appear to be following a โlow-hire, low-fireโ strategy. Many Fed officials have suggested that as long as the unemployment rate is low, the central bank doesnโt need to cut rates to spur more spending and hiring. Unemployment declined to 4.3 per cent in March, from 4.4 per cent.
AP
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