Jerome Powell’s term as Federal Reserve Chairman ends on Friday after months of tension between the White House and the central bank as President Donald Trump pushes for more aggressive interest rate cuts.
Powell’s term ends on May 15, and he will be replaced by Kevin Warsh, a Trump appointee. He served as a member of the Central Bank’s Board of Directors from 2006 to 2011. Mr. Powell will remain on the board even after stepping down as chairman.
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Powell, who was first appointed by President Trump in 2018, said he would stay on to maintain the central bank’s independence.
The announcement came after President Trump said he would fire Powell if he remained at the Fed after his term ends.
Al Jazeera looks back at the central bank chairman’s career.
President Trump’s tension
Mr. Powell’s tenure as Fed chairman during President Trump’s second term was marked by political pressure, as President Trump pushed for more aggressive rate cuts than the Fed intended.
Mr. Powell has emphasized central bank independence and consistently fended off criticism and rhetoric from the president, who earned the nickname “Powell Too Late” for the Fed’s reluctance to cut interest rates quickly and deeply.
Under Chairman Powell’s leadership, the Fed did not begin cutting interest rates until September.
“His legacy was, ‘We need to restore the independence of the Federal Reserve,’ and I think that’s exactly what he did,” Babak Hafezi, a professor of international business at American University, told Al Jazeera. “He fought the Trump administration on lowering interest rates.”
“I think he’s worked hard to avoid becoming a political tool and to keep the Fed as independent as possible.”
In addition to President Trump’s series of disrespectful, threatening and humiliating comments directed at Powell, the administration also launched an investigation into the Fed chair in connection with renovations to the Federal Reserve’s headquarters in Washington. Government prosecutors found no evidence of wrongdoing.
But the investigation has hampered President Trump’s recent appointments.
Republican Sen. Thom Tillis of North Carolina said he would not vote for a central bank nominee until the Justice Department drops its investigation into Powell.
The investigation was then halted and the Senate Banking Committee voted for Warsh to move forward.
It was at his last press conference that Mr. Powell spoke more openly about political pressure.
“We are concerned that these attacks are hurting financial institutions and putting at risk what is important to the public: the ability to conduct monetary policy without considering political factors,” Powell told reporters.
These concerns come at the same time as other appointments and investigations that have raised questions among experts about the central bank’s independence.
That includes President Trump’s firing of Fed Director Lisa Cook, who was appointed by former US President Joe Biden, a Democrat, over allegations of mortgage fraud. The appointment of Stephen Millan, an ally of President Trump who previously served as chairman of the White House Council of Economic Advisers. And in December, President Trump said he would only appoint people who agreed with him on interest rates.
Mr. Trump appointed Mr. Powell as Fed chairman in 2018 during his first term as president, but by October of that year, Mr. Powell had already become a target of Mr. Trump after the Fed raised interest rates. President Trump criticized the Fed as “crazy” on X, then known as Twitter.
In an interview with the Wall Street Journal, President Trump claimed that Powell “almost seems happy to raise rates.” The central bank raised interest rates four times in 2018, from 1.25% to 1.50% at the beginning of the year to 2.25% to 2.50% by the end of the year.
Brett House, an economics professor at Columbia Business School, told Al Jazeera: “Trump 1 and Trump 2 want the same thing, and that is to lower the Fed’s policy rate. There is no clear justification for lowering the federal funds rate target, either in the early days of the first Trump administration or now.”
President Trump continued his rhetorical pressure on Powell in August 2019, calling him an “enemy” and calling for his removal.
In the summer of 2019, Mr. Powell cut interest rates.
Skanda Amarnath, a former New York Fed analyst, told Al Jazeera: “Inflation was pretty low and the economy looked like it was slowing.” “The Fed certainly showed a lot of flexibility in that regard. At the same time, as the data changed in 2021 and 2022, they were willing to raise rates if they determined that inflation was a serious problem.”
The challenges of coronavirus disease (COVID-19)
Mr. Powell’s monetary policy played a central role during the economic fallout from the onset of the COVID-19 pandemic.
Under Chairman Powell’s leadership, the Federal Reserve worked with the Treasury Department to issue direct payments to individuals as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
The central bank also worked with the Treasury Department to launch several lending programs, including the Paycheck Protection Program (PPP), which provides short-term relief to help small businesses survive.
Among the actions taken by the central bank were purchases of both U.S. government and mortgage-backed securities. The Fed also lowered short-term interest rates to a range of zero to 0.25%.
By the fall, Mr. Trump’s criticism of Mr. Powell had softened. Trump told Fox Business in a November 2020 interview that he was “very satisfied with my performance,” according to Amarnath.
When Powell’s term expires in 2021, then-President Biden appointed him as the next chairman of the central bank’s board.
The central bank ultimately raised interest rates to 5.5% by July 2023 as inflation rose to a 40-year high during the pandemic.
“We know now, both in retrospect and at the time, that dealing with soaring inflation required significant interest rate hikes in the fastest rate hike cycle in decades,” the House speaker said.
“If you look at the recovery from the coronavirus government shutdown in 2020, it was a very rapid recovery, and one of the unfortunate byproducts of that was some inflation. But in contrast to the 2008 financial crisis, the Fed and other policy institutions were instrumental in ensuring a very rapid recovery from the massive public health-related restrictions that they imposed on the economy in March 2020,” House added.
Prior to assuming his leadership role, Mr. Powell served as one of seven directors on the Board of Directors. Powell, first appointed by President Barack Obama in 2012, advocated reform of “too big to fail” policies, including taxpayer bailouts of large corporations.
“Too-big-to-fail policies must end, even if ultimately more intrusive measures are needed,” Powell said in a 2013 speech.
By 2017, Mr. Powell argued, regulators had made “significant progress” and allayed concerns that banks were “too big to fail.”
Warsh’s mission
Kevin Warsh has been appointed to lead the central bank. During a controversial confirmation hearing before the Senate Banking Committee in April, Democratic Sen. Elizabeth Warren accused Warsh of being the president’s “sock puppet.” Mr. Warsh denied such claims.
The central bank is expected to keep interest rates on hold until 2027, keeping the benchmark rate between 3.5% and 3.75%, as prices rose by an annualized 3.8% last month, the biggest increase since May 2023. JPMorgan analysts expect the next rate change to be a 25 basis point hike in the third quarter of next year, rather than the cut the White House is pushing for.
CME FedWatch, which tracks potential monetary policy decisions, says there is a 97% chance that interest rates will be left unchanged at the next policy meeting on June 16-17.
This could be a major test for Mr. Warsh, who vowed independence during his confirmation hearing before the Banking Committee.
“Kevin Warsh, who took over as Fed chairman, went from being very critical of the Fed considering a 2024 rate cut to suddenly becoming one of the biggest advocates for a 2025 rate cut,” Amarnath added.
“Rather than exercise independent judgment on monetary policy, there is a real risk that financial institutions will become more politically vulnerable and more politically manipulated. Jay Powell has tried his best to manage the Fed through these pressures,” Amarnath said.
