Former Federal Reserve chair Jerome Powell warned that the central bank is going through a “stress test” and its credibility will be tested in the near future.
In remarks after accepting the John F. Kennedy “Profiles in Courage” award, Powell said that, “like many other institutions, the Fed has been undergoing a stress test.”
The official has been harshly criticized by President Donald Trump, who has demanded the central bank lower interest rates to stimulate the economy.
“Congress wisely chose to insulate monetary policy decisions from political pressure,” Powell added, in reference to the central bank’s historical independence. “These protections have served the public well, and administrations from both parties have respected them.”
Powell went on to warn that if an administration “finds a way to remove Fed officials over policy differences, then future administrations will do so as well.”
“The public would lose faith that the central bank will make decisions based only on what’s best for all Americans,” he added.
Elsewhere in the speech, Powell warned that “the Fed’s credibility would be lost” in such a scenario. “That credibility enables the Fed to support a strong and stable economy for the benefit of American families and businesses. Our credibility has been built and sustained over many decades, and we have a duty to safeguard that priceless asset for our fellow citizens and for generations to come.”
“What the public has every right to expect is that we will make our decisions based only on our best economic analysis of what would most benefit the people we serve,” Powell added.
Powell remains as governor of the Fed after ceasing to be its chair following Kevin Warsh’s appointment in May.
Warsh’s views on the central bank’s independence are under scrutiny, with former policymakers questioning how his approach could affect the body’s authority during periods of economic stress tied to war and inflation, as well as Trump’s demands for lower interest rates.
Warsh has said the Fed should remain “strictly independent” in setting monetary policy, while signaling openness to cooperation with Congress and the administration in other areas. Trump, in turn, said when swearing in Warsh that he wants him to be “totally independent and just do a great job.”
