President Trump says investigation into Federal Reserve Chairman Jerome Powell will continue
President Donald Trump said in an interview on FOX Business that he has no intention of calling off the investigation into Federal Reserve Chairman Jerome Powell.
Interest rate policy has been in the headlines ahead of the Senate Banking Committee hearing on Kevin Warsh’s bid to take over oversight of the Federal Reserve.
President Donald Trump nominated Warsh on the assumption that the former Fed director would be more likely to cut interest rates than outgoing Fed Chairman Jerome Powell. President Trump has repeatedly said borrowing costs must be much lower than they are now.
But many of the president’s own policies, from taxes to tariffs to wars in the Middle East, are pushing up inflation, and the Fed’s next step could just as easily be a rate hike.
On the other hand, many analysts believe that the economy has changed so much that actions taken by the Fed in the past may no longer be relevant. Raising or lowering interest rates would probably be the least of Warsh’s concerns if he became chairman.
Here’s what Warsh’s central bank could face and what you need to know about the possibilities.
Inflation may return
Steve Blitz, chief U.S. economist at GlobalData, said inflation rates declined throughout the second half of the 20th century as the world globalized. But now countries are retreating and turning inward, with most developed countries, including the United States, wanting to produce goods at home rather than abroad.
In fact, the Trump administration is happy with a slightly weaker dollar, hoping it will make American producers more competitive with global producers and bring manufacturing back to the United States. The administration’s immigration policies have shrunk the workforce, raising labor costs, and tariffs have increased input costs.
Taken together, this gives the economy an inflationary bias, Blitz said in an interview with USA TODAY.
Nicholas Colas, co-founder of DataTrek Research, made the same point in an April 14 research note. The long, slow recovery from the 2008 financial crisis and Great Recession led to a long period of low growth in the 2010s, which allowed the Fed to keep interest rates low, he wrote.
“The 2020s are a very different picture. Short-term inflation has been above the Fed’s target (2%) for much of this decade and continues to be so.”
Barring a recession, Collas said, “U.S. interest rates are likely to be higher for the rest of the decade than many market participants expect. Bonds currently reflect some repricing of inflation risk, but the It will take more time for the dime shift to unfold. Specifically, it will take longer for inflation to return to the Fed’s 2% target. The longer it takes, the more markets will question its inevitability.”
No more punch bowls?
Setting interest rates is just one way the Fed can influence the economy. During several crises, including the 2008 financial crisis and the height of the 2020 pandemic, central banks used their balance sheets to buy bonds. Its holdings have skyrocketed and now exceed $6 trillion.
Don Rismiller, chief economist at Strategas, said in a research note that acting quickly and decisively to buy bonds during an emergency is much easier than reversing the process after the crisis is over.
Financial markets don’t like it when the Fed withdraws support, which is often jokingly referred to as a “punch bowl.” The safety and soundness of the banking system is sometimes called into question, he said.
As a result, the Fed could seek to significantly shrink its balance sheet, be more cautious in its bond-buying program in the first place, and adopt policies that “reserve such tools for a major crisis,” he said.
No more mission creep
In a 2025 speech, Warsh criticized the Fed for what he called “institutional drift.”
“The Fed has assumed a broader role within the government on all issues of economic policy, moving into matters of national strategy and soul. In my view, this expansion into remote areas, regardless of the season or reason, has led to systematic mismanagement of macroeconomic policy. The Fed has functioned more as a general purpose arm of government than as a narrow central bank.”
Beth Ann Bovino, chief economist at U.S. Bank, believes some of the Powell Fed’s efforts over the past few years have reached their limits. One example could be the attempt to reevaluate the unemployment rate measure to make it more comprehensive, but this may have simply confused market participants.
“I think they learned from their mistakes,” she told USA TODAY.
Importantly, Bovino believes that the Fed’s instinct in the short term is to wait on policy developments and move forward once a deal is reached. Having a unified committee is important to the credibility of the chair, she said.
