Jerome Powell used a routine rate announcement press conference on January 28 to make an unusually pointed appeal: the next chair of the Federal Reserve should draw a clear line between the central bank and partisan politics. The Fed left the federal funds target range unchanged at 3.5–3.75 percent and Powell portrayed inflation and tariff dynamics as broadly in line with expectations, but his remarks about institutional independence carried an unmistakable political undertone.
Powell told reporters that the recent round of tariff increases has largely worked through goods prices and that the Fed expects their impact on inflation to peak and then recede, provided there are no fresh, large tariff escalations. He stopped short of signalling any imminent shift toward easier policy, saying the FOMC had not decided on the timing or pace of any future rate cuts.
Beyond the technical economics, Powell addressed the mounting strains between the Fed and the White House. He stressed that he and his colleagues are committed to preserving the Fed’s independence and defended his decision to attend oral arguments before the Supreme Court, calling the case one of the most consequential in the Federal Reserve’s 113-year history and suggesting his presence was necessary to explain the central bank’s position.
That assertion unfolded against a fraught political backdrop. President Trump has repeatedly criticised Powell and promised to name a new Fed chair soon; the Treasury secretary said a nominee could emerge within about a week. Tensions have escalated since January 2025, with the president publicly chiding Powell for not cutting rates more aggressively and at times demanding his resignation.
Complicating the succession debate, federal prosecutors in Washington have opened a criminal investigation into renovation work at the Fed’s headquarters and whether Powell misled Congress about the project. Powell confirmed that the Justice Department had issued a subpoena and had threatened criminal charges, an extraordinary development that adds legal uncertainty to an already politically charged transition.
For markets and policymakers the implications are immediate. A contested or politicised selection process risks undermining the Fed’s credibility at a moment when monetary policy still faces a delicate balance between taming inflation and supporting growth. Legal scrutiny of a sitting chair injects additional uncertainty into expectations for future policy and could complicate the handover to a new leader.
Internationally, any erosion of confidence in the Fed could ripple through global markets by altering dollar strength, bond yields and capital flows. Investors will watch both the administration’s nominee and the Supreme Court and Justice Department actions closely: the identity and independence of the Fed’s next chair will shape the US central bank’s approach to rates, regulatory priorities and its role in crises for years to come.