Powell defends independence of Federal Reserve

US FEDERAL Reserve chairman Jerome Powell made a strident case for central bank independence on Wednesday (Jan 28), underscoring his point by indicating that interest rates will likely remain on hold until his term ends in May despite enormous pressure.

The central bank kept its benchmark federal funds rate steady in a range of between 3.5 and 3.75 per cent, following three straight quarter-point rate cuts.

The official statement indicated that the threats of both inflation and unemployment had lessened in recent months, with price increases softening somewhat and surprising resilience in jobs growth, consumer spending and gross domestic product.

Economists described the move as a “hawkish hold”, noting that Powell painted a picture of an economy that did not require any further rate cuts for the foreseeable future.

“We still have some tensions between the employment and inflation (mandates), but the upside risks to inflation and downside risks to the labour market have both diminished,” he said at his customary press conference following the Fed’s two-day policy meeting.

He noted that most of the rate-setting committee had projected rate cuts in 2026 the last time a poll was taken in December. But he also emphasised the surprising strength of the US economy, partly because of the data centre building boom caused by the artificial intelligence craze.

The first question that Powell answered at the press conference was about his appearance at the Supreme Court hearing of Fed governor Lisa Cook’s challenge to US President Donald Trump’s attempt to oust her.

On whether he was politicising his role as Fed chair with his attendance, Powell said he did so because “that case is perhaps the most important legal case” in the Fed’s 113-year history.

“I thought about it, and it might be hard to explain why I wouldn’t attend,” he added.

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Previously, Powell has said that the Trump administration launched investigations into his management of a building renovation project and Cook’s mortgage claims as part of a pressure campaign to influence monetary policy.

At Wednesday’s media conference, Powell said the main piece of advice he would give his successor was to avoid political influence and retain central bank independence, and to not get “sucked in” to electoral politics.

“The point of independence is not to protect policymakers,” Powell said.

This point, he stressed, was to maintain trust in central banks by not abusing monetary policy for short-term gains that might win elections, but unleash long-term inflation.

“Reassuring and steady”

Most analysts agreed that Powell, who has been under immense pressure to defend the Fed, has managed to rise to the challenge so far.

“The one thing that really jumped out at me is how reassuring and steady Jay Powell is,” said Oliver Pursche, senior vice-president at financial advisory Wealthspire.

“From my perspective, I take confidence in what the Fed is doing. He repeated that everything is running as expected and strongly, and that the Fed is going to continue to focus on data over anything else.”

For now, Powell has put to rest fears that Trump’s legal attacks on him and Cook will compromise Fed independence. The identity of the next chair, however, could decide whether Trump’s war on the Fed succeeds in the long run.

The US dollar has plunged against many major currencies in recent weeks, and is down about 8 per cent from this time last year against a basket of rivals.

Powell shrugged off theories that the greenback’s weakness was caused by a crisis in confidence in US world leadership, noting the stability of Treasury markets.

In the age of a mercurial president, perhaps the only thing preventing the bond market from following the US dollar down the tubes are the steady hands of Powell and his refusal to cut rates on command.

Powell chose not to answer a question as to whether he will continue serving on the Fed’s board after Trump replaces him as chair in a few months’ time.

“The next rate cut may be delayed until the Fed’s June meeting,” said Sam Stovall, chief investment officer at investment research firm CFRA Research.

“This is likely due to the recent uptick to the US’ third-quarter 2025 real GDP growth and the stubborn stickiness of inflationary expectations,” he added.