Over the past year, Jerome H. Powell has frequently said that the Federal Reserve faced “no risk-free paths” as it confronted 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, Mr. 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, Mr. Trump will not have another vacancy to fill until Mr. Powell’s term ends in January 2028, stymying the president’s plans to get more of his supporters on the powerful Board of Governors.
The move, which Mr. Powell announced on Wednesday at his final news conference after eight years as chair, drew an immediate rebuke from the administration. Mr. Trump quipped that Mr. Powell was staying because “he can’t get a job anywhere else — Nobody wants him.” Scott Bessent, the Treasury secretary, called Mr. Powell’s decision a “violation of all Federal Reserve norms.”
The question now is whether Mr. Powell’s continued presence at the Fed will further inflame tensions between the administration and the central bank, leading to even more intense attacks that will keep the institution on the defensive. Weeks before Mr. Powell announced his decision, Mr. 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.”
Mr. 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 decision would be viewed as a political act. “I have long planned to be retiring.”
The decision had nothing to do with Kevin M. Warsh, Mr. Trump’s pick to replace him as chair, Mr. Powell stressed on Wednesday.
He said he took Mr. Warsh at his word that he would stand up to political pressure from the president. Mr. Powell also vowed to keep a “low profile as a governor,” 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 Mr. Powell to stay relatively quiet and embrace a “one man, one vote” approach.
Mr. Powell spent much of his news conference explaining that his decision to stay rested on a belief that the central bank’s independence was fundamentally “at risk” amid a litany of legal threats that were far from over.
“These legal actions by the administration are unprecedented in our 113-year history, and there are ongoing threats of additional such actions,” he said. “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.”
Top of mind for Mr. Powell is a criminal investigation that the Justice Department 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 maintained that they could reopen it at any point. Jeanine Pirro, the U.S. attorney for the District of Columbia, said on Thursday that there was “no question” the Justice Department would appeal a federal judge’s recent ruling that quashed subpoenas issued to the central bank. For now, the Fed’s inspector general is looking into the renovation, an inquest Mr. Powell requested in July.
“You’ve got billions of dollars in cost overruns on a very small project,” she said, adding that prosecutors would await the “decision” by the Fed’s internal watchdog and “based upon that decision we will then decide what we are going to do.”
Mr. 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 Mr. Trump will now use the allegations leveled in the investigation to try to fire Mr. Powell, having already accused him of “incompetence” and questioned whether he committed fraud.
“There’s definitely a cost-benefit analysis one would think Powell engaged in, and the cost of staying is that it greatly increases the likelihood that there will be a for-cause removal case against him involving the renovations, which would be a novel litigation,” said Lev Menand, an associate professor at Columbia Law School.
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.
Joseph Gagnon, a former senior Fed staffer who is now at the Peterson Institute for International Economics, said it was crucial for Ms. Cook to win that case. “If they let Trump fire governors at will, then there’s no more independent monetary policy,” he said.
If Mr. Trump or the Justice Department pursue any additional legal actions, “being on the inside is always better than being on the outside,” Scott Alvarez, who previously served as the Fed’s general counsel, said of Mr. Powell’s decision to stay.
Graham Steele, a longtime financial regulation lawyer and a former Treasury Department official, noted that there would be “strategic” advantages in doing so, such as “physical proximity, access to information and the institutional halo effect that come from being a sitting governor.”
For the time being, Mr. Powell’s continued presence at an institution that has gone through so much tumult in the past year and is now on the cusp of a major leadership transition is “symbolically really important,” said Jon Faust, a fellow at the Center for Financial Economics at Johns Hopkins University and a former senior adviser to the outgoing chair.
What perhaps will matter even more is when Mr. Powell decides to leave, Ms. Sahm said.
“It will mean so much when he says, ‘I’m ready to retire,’ because that will be a sign from someone who cares deeply about the institution that it’s going to be OK.”
