Jerome Powell: Managing the US Fed through COVID-19 and political challenges | Bank News

On Friday, Jerome Powell’s term as chairman of the United States Federal Reserve Board of Governors will come to an end after months of conflict between the White House and the central bank, while US President Donald Trump is pushing for interest rate cuts.

Powell’s term ends on May 15, and he will be replaced by Trump appointee Kevin Warsh, who served on the central bank’s board of governors from 2006 to 2011. Powell will continue as governor after stepping down.

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Powell, who was first nominated by Trump in 2018, said he wanted to stay to protect the central bank’s independence.

The announcement came after Trump said he would fire Powell if he remained at the Fed at the end of his term as chairman.

Al Jazeera looks back on the career of the central bank chairman.

Trump’s argument

Powell’s tenure as Fed chair during Trump’s second term was marked by political pressure as Trump pushed interest rates lower than the Fed was willing to do.

Powell emphasized the independence of the central bank and always rejected the criticism and words of the president, who gave him the name “Too Late Powell” about the reluctance of the Fed to reduce rates quickly and strongly.

Under Powell’s leadership, the Fed did not start cutting interest rates until September.

“His legacy was, ‘We need to restore freedom to the Federal Reserve,’ and I think that’s what he did,” Babak Hafezi, a professor of international business at the American University, told Al Jazeera, referring to the idea that the Fed was too close and too unconnected to the US government in the past. “He fought the Trump administration by cutting interest rates.”

“I think he’s worked very hard not to be a political tool and to make the Fed as independent as possible.”

Apart from the insulting, threatening and insulting comments from Mr. Trump directed at Powell, the administration has also launched an investigation into the Fed chair regarding the restructuring of the Federal Reserve headquarters in Washington. Prosecutors found no evidence of wrongdoing.

The survey, however, stood in the way of Trump’s recent nomination.

Republican Senator Thom Tillis of North Carolina said he would not vote on any central bank nominee until the Justice Department dropped its investigation into Powell.

The investigation was later suspended, and the Senate Banking Committee voted to proceed with Warsh.

It wasn’t until his final press conference that Powell spoke openly about political pressure.

“I’m worried that these protests are destroying the organization and putting at risk what is important to the people, which is being able to manage money without thinking about politics,” he said. Powell told reporters.

These concerns come alongside other appointments and investigations that have raised questions among experts about the central bank’s independence.

Among them are Trump’s firing of Fed Governor Lisa Cook, who was appointed by former US President Joe Biden, a Democrat, for loan fraud; the appointment of Trump ally Stephan Miran, former chairman of the White House Council of Economic Advisers; and Trump’s statement in December that he would choose the person he agreed with on the interest rate.

Although Trump in his first term as president appointed Powell to chair the Fed in 2018, by October of that year, Powell was already in Trump’s group when the Fed raised interest rates. Trump called the Fed “crazy” on X, known as Twitter.

In an interview with The Wall Street Journal, Mr Trump said Powell “almost seems happy to raise interest rates”. The central bank raised rates four times in 2018, from 1.25-1.50 percent at the beginning of the year to 2.25-2.50 percent at the end of the year.

“The ambitions of Trump 1 and Trump 2 are the same, and this is less about the Fed’s policies. Even in the first days of the Trump administration or now there is no reason to reduce the Fed’s money,” Brett House, professor of economics at the Business School of Columbia University, told Al Jazeera.

Trump continued to pressure Powell, calling him an “enemy” in August 2019 and pushing for his removal.

In the summer of 2019, Powell cut down the trees.

“Inflation was very low, and the economy seems to be shrinking,” Skanda Amarnath, a former analyst at the New York Federal Reserve, told Al Jazeera. “The Fed showed a lot of flexibility in that direction. At the same time, when the data changed in 2021 and 2022, they were willing to raise interest rates if they thought that inflation was a serious problem.”

The story of COVID-19

Powell’s monetary policies were at their peak during the financial crisis at the start of the COVID-19 pandemic.

Under Powell’s leadership, the Federal Reserve, along with the Treasury Department, issued direct payments to the public as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The central bank also worked with the Treasury to establish a number of loan programs, including the Paycheck Protection Program (PPP), which provided short-term relief to small businesses.

Some of the central bank’s actions were buying US government and default securities. The fund also cut long-term interest rates to zero to 0.25 percent.

By fall, Trump’s opposition to Powell had waned. In a November 2020 interview, Trump told Fox Business he was “very happy with what he’s doing”, Amarnath said.

After Powell’s term ended in 2021, Mr. Biden, who was the president, also appointed him to head the committee of governors of the central bank.

With inflation at a 40-year high during the pandemic, the central bank ended up raising interest rates to 5.5 percent by July 2023.

“It turned out, in retrospect and at the time, that they needed to raise rates at the fastest rates we’ve seen in decades to deal with inflation,” House said.

“When one looks at the recovery from the COVID-19 shutdown in 2020, it was a quick recovery, and some of the inflation was one of the sad things.” But unlike the financial crisis of 2008, the Fed and other regulatory agencies helped to quickly recover from the major public health restrictions on the economy that we enacted in March 2020.

Before assuming the leadership role, Powell served as one of the board’s seven ambassadors. First appointed by US President Barack Obama in 2012, Powell has advocated for “very large and unavoidable” policy reforms related to taxpayer refunds for large corporations.

“The biggest things that can fail must end, even if they are the most important in the end,” Powell said in a 2013 speech.

By 2017, Powell said regulators had “made a lot of progress” and concerns that banks were “too big to fail” had been resolved.

Warsh work

Kevin Warsh is now he will head the central bank. During a hearing before the Senate Banking Committee in April, Senator Elizabeth Warren, a Democrat, accused Warsh of being a “sock puppet” of the President. Warsh denied such claims.

It is expected that the central bank will keep the interest rate until 2027, keeping its rate between 3.5 and 3.75 percent when rates jumped last month by 3.8 percent per year, the biggest increase since May 2023. The White House is trying.

CME FedWatch, which monitors the probability of monetary policy decisions, says there is a 97 percent chance that rates will remain unchanged at the next policy meeting, which will be June 16-17.

This could be a big test for Warsh, who has vowed to be independent in his confirmation hearings before the banking commission.

“Kevin Warsh, who has been the chair of the Fed, has been very critical of the Fed for considering a rate cut in 2024 and suddenly became one of the experts to cut rates in 2025,” Amarnath added.

“There is a real risk that the agency becomes politically vulnerable and politically driven, rather than making independent financial decisions.” Jay Powell tried his best to steer the Fed through this crisis,” Amarnath said.