Jerome Powell speaks after receiving the 2026 John F. Kennedy Profile in Courage Award on May 31, 2026 in Boston, Massachusetts.Scott Eisen/Getty Images
The Federal Reserve is enduring a political “stress test” that imperils public confidence in the central bank and could harm the United States economy, according to former Fed Chair Jerome Powell in recent statements.
“Similar to numerous other entities, the Fed has been undergoing a stress test,” Powell informed an assembly at the John F. Kennedy Library Foundation in Boston on Sunday, elaborating that “Congress judiciously chose to shield monetary policy determinations from political influence. All other advanced-economy nations have adopted a similar approach.”
Jerome Powell speaks after receiving the 2026 John F. Kennedy Profile in Courage Award on May 31, 2026 in Boston, Massachusetts.Scott Eisen/Getty Images
These remarks constituted a strong endorsement of Fed independence, delivered just weeks after Powell relinquished his position as head of the central bank. Powell continues to serve on the Federal Reserve’s 12-member board of governors.
At the commencement of this year, the Department of Justice initiated a criminal inquiry into Powell concerning his congressional testimony about budget overruns on a building renovation project. This marked the first criminal investigation of a Fed chair in the central bank’s 113-year existence.
Powell refuted any wrongdoing and denounced the investigation as an attempt to sway Fed policy. President Donald Trump, who has frequently criticized Powell’s stance on interest-rate policy, disavowed any involvement in the criminal probe.
Concurrently, the Supreme Court is expected to render a verdict in the upcoming weeks on a critical legal dispute centered on Trump’s attempt to dismiss Fed Governor Lisa Cook due to alleged mortgage fraud.
Federal statutes permit the president to remove a member of the Fed board “for cause,” yet there is minimal precedent for such a dismissal. Cook rejected the accusations as unfounded, characterizing them as politically driven.
Renovations continue at the Federal Reserve Board building in Washington, D.C., November 14, 2025.Elizabeth Frantz/Reuters
In his recent statements, Powell upheld the legal protections afforded to Fed officials as essential safeguards for the nation’s financial stability.
“Should any administration devise a method to dismiss Fed officials over policy disagreements, subsequent administrations will likely follow suit. The public would cease to trust that the central bank will base its decisions solely on what is most beneficial for all Americans. The Fed’s credibility would be eroded,” Powell asserted.
“That credibility empowers the Fed to foster a robust and stable economy for the prosperity of American families and enterprises,” Powell concluded.
This warning emerges as the Fed confronts a resurgent wave of inflation, triggered by a significant oil shock amidst the Iran war. These circumstances present an initial challenge for Fed Chair Kevin Warsh, who assumed leadership of the central bank last month.
If the Fed were to forfeit its autonomy, central bankers answerable to political authorities might opt for lower interest rates as a means to stimulate short-term economic activity and garner public favor, some analysts previously communicated to ABC News. However, they cautioned, such a stance carries a substantial risk of prolonged inflation fueled by increased consumer spending, unrestrained by interest rate adjustments.
A surge of high inflation in the 1970s and 1980s serves as a cautionary account.
Prior to inflation taking root, President Richard Nixon had encouraged then-Fed Chair Arthur Burns to reduce rates in the lead-up to the 1972 presidential election. Nixon’s encouragement is widely considered to have contributed to interest rates being lower than necessary, which allowed inflation to escalate uncontrollably.
Nearly a decade later, in 1981, the Fed elevated interest rates to as high as 20% to regain control over inflation. While this measure was successful in cooling price increases, it drove the U.S. into a recession and pushed the unemployment rate to 10%.
Sourse: abcnews.go.com