Fed stands pat on interest rates as Powell announces plans to stay on as governor

While the Federal Reserve’s interest rate decision is typically the most anticipated action from the monetary body’s eight yearly policy meetings, Wednesday’s press conference after the April meeting had its collective energy focused elsewhere.

This time around, the most pressing question on the minds of reporters was whether or not outgoing Fed chairman Jerome Powell would call it quits on May 15 when his second term as chairman comes to an end or break with tradition and finish out his governor duties, which technically run through early 2028.

Turns out, Powell’s days at the Fed, which track back to 2012 and include service under previous chairs, Ben Bernanke and Janet Yellen, aren’t over just yet.

While Powell’s announcement may have risen as the biggest monetary policy news moment Wednesday, it’s worth noting that the Fed’s 12-member Federal Open Market Committee also voted to keep its benchmark interest rate range of 3.5% to 3.75% unchanged for the third meeting in a row.

Powell said he was following through on his promise not to leave the Fed until the resolution of legal challenges launched by President Donald Trump’s administration against the U.S. central bank.

“I said that I would not leave the board until this investigation is well and truly over, with transparency and finality,” Powell said. “And I stand by that. My decisions on these matters will continue to be guided entirely by what I believe is in the best interest of the institution and the people we serve. After my term as chair ends on May 15, I will continue to serve as governor for a period of time to be determined.”

Central bank under threat?

While Powell’s decision to stay thwarts the chance for Trump to make a fourth appointment to the Fed’s seven-member board of governors, the outgoing chairman discounted that the move was motivated by politics or the urge to alter the makeup of the body.

But Powell did characterize Trump’s legal actions targeting the Fed as “unprecedented” attacks and a threat to the central bank’s legally mandated independence.

“I think (the Fed’s independence) is at risk,” Powell said. “These legal assaults, if you will, the institution is being battered over these things. We’re having to resort to the courts to enforce … not so much independence, it’s really the ability to make monetary policy without political considerations. That’s what we’re talking about."

Last week, U.S. Attorney for the District of Columbia Jeanine Pirro announced via social media that her office was ending its probe into the Fed’s extensive office renovation project because the Fed’s inspector general would scrutinize them instead, per a report from the Associated Press. But she added that her office could reopen the investigation if “the facts warrant doing so.”

Since the start of his second term, Trump and his allies have repeatedly clashed with the Fed’s leadership over interest rates, publicly criticizing Powell for not cutting rates quickly enough and even suggesting that the president should have more say in monetary decisions — a stance that would erode the traditional insulation of the Federal Reserve from political influence.

Tensions further escalated following the administration’s pursuit of legal efforts to remove a sitting Fed governor and initiating a federal investigation into Powell — moves that many observers see as attempts to assert greater White House control over the central bank.

Why Fed independence matters

In a Deseret News interview earlier this year, BYU Marriott School of Business professor and former Federal Reserve economist Jason Kotter explained why keeping politics out of monetary policy is crucial for the country’s economic stability.

“Economists are pretty much unified on this point: independence of the central bank is crucial to a country’s economic well-being. From the very beginning, the Federal Reserve Act was written specifically to keep the Fed insulated from direct political control.

“The reason is straightforward. The Fed has two primary goals — maintaining stable prices and keeping employment as high as possible — and essentially one main tool: interest rates. Political leaders, regardless of party, face extremely strong incentives to push for lower interest rates because that creates short-term economic growth, faster job creation and political rewards. The downside of interest rates being too low — higher inflation — usually shows up later, often after the next election."

Senate panel advances Powell replacement

Earlier Wednesday, the Senate Banking Committee forwarded Trump’s appointee to replace Powell, financier and former Fed governor Kevin Warsh, on a 13-11 party line vote. Warsh’s appointment will be subject to a vote of the full Senate next month and is expected to win the body’s support.

Powell said he would do his best to support Warsh’s policy direction but noted, “if you can’t, you can’t.” Powell also highlighted that Warsh “has the capacity and skills” to be very good at building consensus among the 19 people who comprise the body, including seven presidential appointees and the presidents of the 12 Federal Reserve banks across the country.

Powell said he plans on being a “quiet” governor, resuming a position he served in for six years after President Barack Obama appointed him to the board in 2012. Trump elevated him to chair in 2018 and President Joe Biden re-nominated him in 2021.

“I plan to keep a low profile as a governor,” Powell said. “There is only ever one chair of the Federal Reserve Board and when Kevin Warsh is confirmed and sworn in, he will be that chair.”