Jerome Powell stepped down this week as Federal Reserve chair, leaving behind a complicated legacy. His tenure included both missteps and genuine achievements: the Fed was slow to act as inflation surged after the pandemic, but eventually engineered a rare soft landing, bringing prices under control without triggering recession or job losses.
Yet monetary policy may not define how Powell is remembered. His most consequential contribution to the institution appears to be his willingness to publicly defend the Fed's independence from relentless pressure by Donald Trump. That battle, however, is far from over.
Powell refused Trump's repeated demands to slash interest rates. When the president threatened criminal prosecution over a dubious claim that Powell lied to Congress about renovation costs at the Fed's headquarters, Powell stood firm and rejected calls to resign. He also publicly identified Trump's real motivation: retaliation.
"The best thing Jay Powell did for the Fed's independence is that he just did the job as you are supposed to do it," said Austan Goolsbee, president of the Federal Reserve Bank of Chicago. "Nobody knew how the Fed would respond under direct attack. His approach let us put our heads down and do the job as it's supposed to be done."
Trump has tapped Kevin Warsh, a former Fed official aligned with the president's interests, to replace Powell. Even if Warsh proves willing to cut rates regardless of inflation concerns, he would likely struggle to sway the majority of the 12-member Federal Open Market Committee, where only two members are Trump appointees.
Trump's broader aim is to subordinate the Fed entirely to his control. So far he has failed, but he now has a Supreme Court dominated by conservatives who embrace what legal experts call the "unitary executive theory" that grants presidents sweeping authority over federal agencies.
The president remains frustrated that Powell chose to remain on the Fed's board after stepping down as chair, denying Trump a seat to fill. Though Powell defeated Trump's legal assault, there are signs the fight may resume. Jeanine Pirro, the U.S. attorney for the District of Columbia, has indicated she might revive efforts to remove him.
"The threat to the Fed's independence remains a very significant challenge when a president can threaten members of the FOMC and find ways to remove them because he doesn't like their views on monetary policy," said Janet Yellen, Powell's predecessor as Fed chair.
Powell is not the only Fed official in Trump's crosshairs. The president fired board member Lisa Cook, claiming she lied on a mortgage application. Lower courts rejected the removal, ruling the stated cause was weak and Cook was denied due process. Trump appealed to the Supreme Court, which has not yet ruled.
The assault on Fed independence reflects a larger dismantling of protections for independent agencies. The Supreme Court has stripped away legal safeguards that once shielded agencies from presidential interference, allowing Trump to remove members of the National Labor Relations Board, the Merit Systems Protection Board, the Consumer Product Safety Commission, and the Federal Trade Commission.
Justice Ketanji Brown Jackson articulated the danger during oral arguments: "Having a president come in and fire all the scientists, and the doctors, and the economists and the PhDs, and replacing them with loyalists and people who don't know anything is actually not in the best interest of the citizens of the United States."
The Fed enjoys somewhat stronger protections than other agencies, largely because the economic consequences of politicizing monetary policy are so severe. History offers cautionary tales. In Modi's India, Erdogan's Turkey, and Nixon-era America, when presidents pressured central banks to lower rates, meddle with leadership, or fund government spending, the result was surging inflation and economic damage.
Financial markets have so far remained calm despite Trump's threats to the Fed. Long-term interest rates and the dollar's value have not moved as if investors lost faith in the Fed's ability to fight inflation. Randall Kroszner, a former Fed governor, observed that this composure rests on an implicit assumption that the legal system, particularly the Supreme Court, will ultimately defend central bank independence when necessary.
The Supreme Court itself seems to understand the stakes. While the conservative majority has ruled that the constitution allows Trump broad discretion over most federal agencies, the justices carved out an exception for the Fed. Their reasoning bordered on the oblique: the Fed is "a uniquely structured quasi-private entity that follows in the distinct historical tradition of the first and second banks of the United States."
Stephen Vladeck, a law professor at Georgetown University, called the logic absurd but grasped its true message. "The fairly obvious point of that sentence was the justices in effect saying: 'Don't worry, markets, we're not coming for the Fed.'"
The rest of the federal government stands on shakier ground. Much of the institutional apparatus faces the prospect of being reshaped by a president intent on settling scores, rewarding allies, and advancing personal agendas. The Fed's independence survives, at least for now, balanced precariously on a court ruling that could be reversed.
Powell's decision to remain on the Fed board may be his final gift to the institution. He cannot stop the Supreme Court from eroding the boundaries of presidential power. But he can help preserve the Fed's autonomy while it still exists.
Author James Rodriguez: "Powell's refusal to buckle under pressure was a profile in institutional courage, but clinging to independence against a president bent on domination will require more than resolve from future Fed leaders."
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