By Nick Timiraos
For eight years, Federal Reserve Chair Jerome Powell's rule for dealing with Donald Trump was simple: Don't make eye contact. Then, on a Sunday night in January, he decided to look the president straight in the face.
After receiving subpoenas concerning his testimony months earlier about the Fed's building renovations, Powell released a bold video dismissing that explanation. "Those are pretexts," he said, stone-faced, and accused Trump's Justice Department of threatening him with an indictment because the Fed hadn't cut interest rates as fast as the president demanded.
Powell's gambit had its intended effect, rallying bipartisan support to the Fed, which, for now, has preserved its independence.
But even those who cheered his defiance in the skirmish aren't sure the Fed can win a longer war against sustained presidential pressure. Powell's term as chair ends in May, and the qualities that made his stand possible don't automatically transfer to his successor.
Trump, meanwhile, has three more years and every motive to keep finding new ways in.
Losing the war doesn't demand a dramatic collision, such as a president who fires the Fed chair or a Congress that rewrites the Federal Reserve Act. It can happen through quiet erosion: a president who demands lower interest rates, a chair who can't say no and few in Congress coming to the rescue.
Former Fed officials worry its independence won't be secure until the president himself backs off. "I'm very pessimistic about whether the U.S. can avoid total partisan control of monetary policy over the remainder of Trump's term," said Jon Faust, who served as Powell's senior adviser from 2018 to 2024.
He said the country was no longer shocked that Trump would bend other ostensibly apolitical institutions such as the Justice Department and the FBI to his will. "I'm through with being surprised. I think he'll try to push it that far," said Faust.
Powell is arguably the last bipartisan figure in Washington. He is a Republican first nominated as Fed governor by Barack Obama, elevated to chair by Trump and reappointed by Joe Biden.
The independence of the Fed is structurally defended by its ability to set its own budget without an appropriation from Congress and long, 14-year terms for governors with removal protections.
Powell reinforced those defenses with something harder to replicate: bipartisan credibility built through relationships on Capitol Hill and the moral authority of someone who owed the president nothing.
All of that walks out the door when he leaves the Fed, said Claudia Sahm, a former Fed economist.
"Whether the institution continues to stand up shouldn't hinge on an individual," said Sahm. "That's not a very robust protection."
The next chair, she added, risks arriving "pre-compromised," meaning the person will signal enough loyalty to win the job from Trump and then face pressure -- from investors, Congress and colleagues -- to demonstrate a degree of independence Trump won't tolerate.
Trump's pick to succeed Powell is former Fed governor Kevin Warsh. Former colleagues have struggled to reconcile his full-throated commitment to the institution's independence when he served there 15 years ago with his more recent defense of Trump's broadsides. Some have dismissed Warsh's recent statements as part of his campaigning for the job.
Warsh has echoed the president's core complaints that the Fed caused inflation through its own mistakes, lost credibility by cutting rates before the 2024 election and has been working at cross-purposes with the administration. "I, frankly, quite understand his frustration," he told Fox Business Network in October.
Warsh didn't respond to a request for comment.
A White House spokesman said the administration is "working closely with Congress to swiftly confirm Warsh and restore confidence, competence and credibility to the Federal Reserve."
Support built over years
Trump's tariff increases last year made Fed officials more circumspect about inflation, frustrating a president who had repeatedly demanded lower borrowing costs.
Presidents have long chafed at the Fed's autonomy in shaping economic conditions. Lyndon Johnson reportedly shoved his Fed chair against a wall while questioning his patriotism.
But the use of a criminal investigation to pressure the Fed is something "we've never seen anything like...in the United States," said Janet Yellen, a former Fed chair and Treasury secretary. "What Trump did here is really no holds barred, weaponizing his Justice Department."
The administration had been split from the start over how aggressively to confront the Fed. Treasury Secretary Scott Bessent, wary that undermining its independence could backfire, at times counseled restraint. Others looked for ways to indulge the president's impulses. Before the 2024 election, some advisers explored whether they could find a cause that would justify attempting to remove Powell.
The Fed's building renovation provided the opening. Russell Vought, Trump's budget director, seized on questions Senate Banking Committee Chair Tim Scott (R., S.C.) had asked Powell at a June hearing to imply the chair had lied to Congress. The factual disputes hinged on questions like whether landscaping atop an underground parking structure counted as "rooftop gardens."
Then, in December, two emails from Carlton Davis, a lawyer in the office of U.S. Attorney Jeanine Pirro, arrived at the Fed asking for a meeting. To some, the breezy and informal tone -- no specific questions, no mention of an investigation -- read like an attempt to depose individuals without lawyers present. The Fed didn't respond. Davis was a former GOP oversight staffer and, except for a brief stint in 2018 as an assistant U.S. attorney in Virginia, not a career prosecutor.
On Dec. 29, the same day Davis sent the second email, Trump stood next to Israeli Prime Minister Benjamin Netanyahu at a news conference and threatened a "gross incompetence lawsuit" against Powell. He offered no details.
Pirro was present during a White House event on Jan. 8, where Trump excoriated his U.S. attorneys for not moving fast enough to prosecute his favored targets. The following day, the Fed received grand jury subpoenas with Davis's name on both.
By going public with his response, Powell wasn't just trying to win a public-relations battle. The subpoenas were material information -- a sitting president was allowing the criminal justice system to pressure the institution responsible for interest rates. If they stayed secret and the Fed later cut rates, no one would even know to ask whether the administration's pressure had played a role.
Powell also recognized he had an opening. The investigation was so transparently political that he could count on support he couldn't have mobilized before, said Daleep Singh, who as a New York Fed executive worked with Powell in 2020 before taking a top job in the Biden White House. "The White House had overplayed its hand," Singh said.
Disclosing the probe ran counter to what any defense lawyer would recommend, but Powell had made up his mind. All that was left was to get the words right.
His outside counsel, Gerson Zweifach -- a partner at powerhouse law firm Williams & Connolly who had previously served as general counsel of News Corp and then 21st Century Fox -- drove to Powell's house in suburban Washington to offer edits to the script. (News Corp is the parent company of The Wall Street Journal and shares common ownership with Fox, the successor to 21st Century Fox.) Powell filmed it from the Fed's studio in one take on Sunday evening.
Before and after the video dropped, he spoke with lawmakers. He had spent years cultivating relationships on both sides of the aisle on Capitol Hill. "Our window into democratic accountability is Congress," he said at a news conference on Jan. 28. "It's something you need to work hard at, and I have worked hard at it."
Powell's calendars at the end of last year showed regular contact with Republicans who have defended Fed independence. One of them, Sen. Thom Tillis of North Carolina, a Republican on the banking committee who isn't seeking re-election, has said Powell is a familiar enough presence to stop in and pet Gus, one of the dogs in the senator's office, when making the rounds on Capitol Hill. "Gus sends his regards," Tillis said at a 2024 hearing.
Twenty minutes after Powell's video, Tillis vowed to block any Fed nominees until the investigation was dropped. "If I'm quiet on that Sunday night and don't say something Monday morning, we may wake up to a very different market," he said in a later floor speech.
Blowback wasn't limited to Republicans on Capitol Hill. Television hosts on Fox News -- the network Pirro had left to become the head of the Department of Justice office pursuing Powell -- offered no defense of the investigation. Former Trump adviser Larry Kudlow, a regular Powell antagonist, called it the work of "gremlins."
At the White House, Powell's public rebuke set off a scramble. One adviser described the fallout as a "huge cluster." Bessent was irritated by the investigation. Earlier, he had told colleagues he expected Powell, who has the option to stay on as governor at the Fed until 2028, would leave when his term as chair ended. Now that was in doubt, along with the easy confirmation of any successor this spring.
Pirro went on Sean Hannity's show on Fox News to explain herself -- something prosecutors with open investigations rarely do. "None of this would have happened if they had just responded to our outreach," Pirro said.
Some of the president's allies want to see what the investigation might uncover.
Pirro "is going to take it to the end and see," Trump told reporters at the White House on Feb. 2, where he inflated the Fed's building renovation cost, claiming the $2.5 billion project had ballooned to $4 billion. "It's either gross incompetence or it's theft of some kind or kickbacks."
In response to questions for this article, a spokesman for Pirro said the office doesn't comment on ongoing investigations.
The Fed, in sealed proceedings, has mounted a legal challenge to quash the subpoenas, The Wall Street Journal reported last week.
Challenge for successor
An inherent tension dogged the search for Powell's successor from the start. Trump wanted someone who would lower interest rates, but anyone willing to vocally signal agreement risked arriving with a credibility deficit. That is treacherous for an institution that depends on its independence, and Warsh inherits that bind.
Trump drove the point home the day after announcing Warsh as his choice. At the Alfalfa Club dinner in Washington on Jan. 31, Trump asked Warsh to stand, then joked he would sue him if rates didn't fall -- a loaded quip given that Powell, also in attendance, faced a live legal threat.
If inflation reaccelerates or his colleagues resist, Warsh may find it harder to lead the Fed without aggravating the president. "Trump's vindictiveness about friends that double-cross him seems more intense even than his normal antipathy," Faust, the former Powell adviser, said. "I think that will really bite the next chair."
Whether this amounts to permanent damage or a stress test that ends with the Trump administration remains unclear. Losing bipartisan legitimacy is dangerous for an institution whose officials aren't elected and whose decisions can never be proven right or wrong. Once the expectation takes hold that the chair is a political actor serving at the president's pleasure, every future president has an incentive to treat the person in the role that way.
In the Senate, Scott sought to find an off-ramp for Tillis's blockade of any confirmation of Powell's successor by saying publicly that he didn't see evidence of criminal wrongdoing by the sitting chair, undercutting the case for the Justice Department investigation.
But Tillis hasn't backed down, repeating that until the probe is over, he won't vote any nominee out of the banking committee. With all Democrats on the panel taking the same stand, the 13-11 GOP majority isn't enough to push a nominee through without him.
Tillis has been careful to blame the investigation on overzealous staff rather than the president. "I think we had a young U.S. attorney with a dream trying to get the president's attention," he told CBS. "It's not cute."
Powell's last big decision is whether, after his term as chair ends May 15, to stay on until his separate term as governor ends in 2028.
People who know him well don't think he wants to. It would be awkward -- a shadow authority that could complicate Warsh's ability to lead, like a former pope lingering in the Vatican.
But if Powell leaves, Trump gets to fill the seat and could tighten his grip on the seven-member board of governors. He has appointed three and is attempting to remove another, Lisa Cook, over alleged mortgage fraud. Cook has denied any wrongdoing, and the Supreme Court, which heard oral arguments in her case in January, has so far blocked her removal.
Some inside the Fed worry that a Trump-aligned majority on the board could reshape the institution from within if Warsh is unable to deliver the rate cuts Trump expects. In particular, they fear a majority of governors could try to fire any of the 12 regional bank presidents, who also have a say in setting interest rates, which has never happened and would concentrate rate-setting power among Trump's appointees.
Powell refused to address the investigation or his future at the Jan. 28 news conference. But when a reporter asked what advice he had for his then-unannounced successor, he shrugged, pursed his lips and collected his thoughts.
"Don't get pulled into elected politics," he said. "Don't do it."
