(AFP) – US Federal Reserve chief Jerome Powell said Wednesday that he would stay at the central bank as a governor after his term as chair concludes, as the independent institution battles legal challenges under the Trump administration.
“After my term as chair ends on May 15, I will continue to serve as a governor for a period of time to be determined,” Powell told a news conference after heading his last policy meeting. He stressed that his decision had nothing to do with verbal criticism by elected officials, instead citing unprecedented legal action that President Donald Trump’s administration has taken against the Fed.
“I worry that these attacks are battering the institution 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,” Powell said. He added that he plans to “keep a low profile as a governor” and will leave when he deems it appropriate, in an unusual though not unprecedented move. He can remain as a Fed governor until 2028.
US Treasury Secretary Scott Bessent criticized Powell’s decision on Fox Business. He called it “a violation of all Federal Reserve norms” and “an insult to Kevin Warsh,” who is expected to be the next central bank chief. Since returning to power last year, Trump has frequently slammed Powell for not cutting interest rates more quickly, a policy that would boost economic activity but could fuel inflation.
The president separately attempted to oust Fed governor Lisa Cook over mortgage fraud allegations, in a case that now stands before the Supreme Court. His Justice Department meanwhile opened a criminal probe into Powell and the Fed over renovation cost overruns, a move the central banker called a tactic to erode the Fed’s independence. The Justice Department has dropped that investigation for now, and the Fed chief said he was encouraged by recent developments — although monitoring the remaining steps.
He reiterated that he would not leave the Fed until the probe is “well and truly over,” emphasizing the need for a central bank that operates “free of political influence.” He also congratulated Warsh on clearing a key hurdle in a rocky confirmation process.
– Unusually divided –
Powell’s remarks came shortly after an unusually divided Fed kept interest rates unchanged for a third straight meeting amid high uncertainty from the Middle East war. “Inflation is elevated, in part reflecting the recent increase in global energy prices,” the Fed said, keeping rates in a range between 3.50 percent and 3.75 percent.
But four out of 12 voting officials opposed the outcome, including governor Stephen Miran, who sought a quarter-point cut. Three regional Fed presidents — Beth Hammack, Neel Kashkari and Lorie Logan — backed the pause but not the Fed statement signaling an inclination toward interest rate cuts. This was the largest number of dissenting votes since 1992, and the divergence will be closely watched as the central bank enters a new era.
“This suggests a tougher two-way debate on rates at Kevin Warsh’s first (Fed) meeting as chair in June,” ING analysts James Knightley and Padhraic Garvey said. The Fed has been on a path of rate reductions since late last year. But with the US-Israel war on Iran causing energy costs to surge and snarling supply chains, analysts are monitoring whether inflation could prompt policymakers to consider hiking rates. Powell expects Warsh has the skills to forge consensus among Fed officials.
– ‘Persistent threats’ –
The Senate Banking Committee voted to advance Warsh’s nomination earlier Wednesday, bringing him closer to confirmation. But Democratic lawmaker Elizabeth Warren charged that this would further Trump’s “attempt to seize control of the Fed.” Georgia Senator Raphael Warnock added that Warsh’s nomination had been tainted by “persistent threats” Trump made to Fed governors.
While Republican Senator Thom Tillis initially vowed to block Warsh’s nomination, he relented after the Justice Department dropped its probe of Powell. On whether Warsh would stand up to Trump, Powell said: “He testified very strongly to that effect in his hearing, and I’ll take him at his word.”
– Beiyi SEOW
© 2024 AFP
