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Jay Powell has said he is “not concerned” that Donald Trump’s administration will erode the Federal Reserve’s independence, despite the president-elect’s frequent attacks on the US central bank.
The Fed chief said his institution’s independence was protected by “the law of the land”, and that it had wide-ranging backing from both Republicans and Democrats on Capitol Hill.
“We’re supposed to achieve maximum employment and price stability for the benefit of all Americans and keep out of politics completely,” he said at a conference hosted by The New York Times on Wednesday. “There is very, very broad support for that set of ideas in Congress.”
Powell’s comments come roughly a month before Trump returns to the White House for a second four-year term. On the campaign trail, Trump lobbied for giving the president a greater say over monetary policy — a move that would upend decades of the independence of the Fed.
Still, Powell said on Wednesday that he was “not concerned that there’s some risk that we would lose our statutory independence”.
Powell, who was appointed by Trump in 2017 to serve as chair and later renominated by President Joe Biden to continue in his role, said on Wednesday that he expected to have a constructive relationship with the incoming administration, including with Scott Bessent, who Trump nominated to be Treasury secretary.
Bessent, a hedge fund manager, had previously floated the idea of appointing a “shadow” Fed chair, who would be widely viewed as Powell’s successor before his term was up in mid-2026. That person’s guidance on the outlook for monetary policy would likely take precedence over Powell’s, such that “no one is really going to care what Jerome Powell has to say any more”, Bessent said in October.
“I don’t think that’s on the table at all,” Powell said on Wednesday when asked about the possibility of a shadow Fed boss. “I am confident that I will have the same kind of relationship with [Bessent] once he’s confirmed as I’ve had with other Treasury secretaries.”
Powell spoke less than a fortnight before the Fed’s final policy meeting of 2024. His comments are be his last prior to the gathering, since a blackout period for communications begins in coming days.
The Fed has already cut rates by 0.75 percentage points over the course of its previous two meetings to 4.5-4.75 per cent as price pressures have eased and the labour market has cooled off. Policymakers are now debating whether to deliver another cut later this month.
Powell on Wednesday said the Fed could “afford to be a little more cautious” about rate reductions given the health of the economy, which he said was the “envy of other large economies around the world”.
Officials acknowledge that further interest rates cuts will be necessary over the course of the next year as inflation nears the central bank’s 2 per cent target. But they expect the pace of cuts to slow next year as interest rates approach the “neutral” level, which neither stokes nor stifles demand across the world’s biggest economy.
Christopher Waller, a Fed governor, this week backed a December cut but said his decision would ultimately depend on several key economic reports due this week and next. Investors see roughly 75 per cent odds of a cut, according to trading in federal funds futures.
Economists have warned that Trump’s plans to enact sweeping tariffs, deport immigrants and lower taxes could lead to higher inflation, potentially affecting how quickly the Fed can lower interest rates or even prompt them to consider rate rises again.
Powell said on Wednesday that the Fed had to wait and see how Trump’s plans unfolded before it made policy adjustments: “The decisions we’re making right now are not about that,” he said. “They’re about what’s happening in the economy now.”
