Jerome Powell, the former Chair of the Federal Reserve, has expressed concern over the potential risks associated with political interference in the central bank’s activities.
Powell, now a Fed governor, voiced these concerns while receiving a political courage award at an event in Boston. He didn’t single out any specific administration or air any particular grievances, but stressed the significance of preserving the central bank’s independence, reported the Wall Street Journal on Sunday.
“If any administration finds a way to remove Fed officials over policy differences, then future administrations will do so as well,” Powell warned. He underscored that the credibility of the Fed, built over decades, was a “priceless asset” that he and his colleagues had a duty to safeguard.
Powell also pointed out the legal protections in place to prevent the removal of Fed officials and emphasized that the executive branch has “no role in the selection or oversight of the 12 reserve bank presidents” who vote on interest rates.
Trump-Powell Clash Revisited
Powell’s remarks, the first since transitioning from Fed chair to governor a week ago, hint at a possible reason for his decision to stay on the board rather than retire from public service as is customary for departing chairs.
Looking at President Donald Trump‘s support for new Fed Chairman Kevin Warsh, economist Mohamed A. El-Erian suggested that the tension between Trump and Powell was more personal than structural, shedding light on the complexities of the relationship between the White House and the Federal Reserve.
On several occasions, Trump indicated that Warsh would have the freedom to make independent decisions on interest rates at the Federal Reserve, an issue on which he had repeatedly criticized and pressured Powell in the past.
Powell’s comments also come ahead of a Supreme Court ruling on Trump’s bid to remove Fed Governor Lisa Cook over alleged mortgage fraud, which she denies. It is the first attempt to oust a sitting Fed governor in the central bank’s history.
Warsh Eyes New Inflation Gauge
Billionaire investor Ray Dalio, meanwhile, warned that if Warsh decides to cut interest rates amid ongoing stagflation, it could harm the Fed’s credibility. He stressed that ongoing inflationary pressures and slowing growth require careful consideration by policymakers.
Powell’s warning comes as his successor, Kevin Warsh, expressed his intention to change the Fed’s primary inflation measure, a move that raised eyebrows. He dismissed core personal consumption expenditures and wants to replace the gauge with trimmed-mean and median PCE, the ones produced by the Dallas and Cleveland Feds.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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