When Jerome Powell took over as chair of the Federal Reserve on February 5, 2018, he had certainly imagined a calmer final phase to his now almost eight-year presidency. When the top monetary policymaker’s second term ends on May 15, 2026, the trained lawyer will look back not only on overcoming the coronavirus crisis and the subsequent fastest rise in interest rates in US history due to inflation, but also on a period of domestic political pressure the likes of which the independent central bank has not experienced since the 1970s. At that time, US President Richard Nixon pressured then-Fed Chairman Arthur Burns to keep interest rates low despite high inflation risks. Today, US President Donald Trump wants rapid interest rate cuts, despite a very complex and dynamic economic environment. In addition, Jerome Powell and a member of the Federal Open Market Committee (FOMC) are facing personal attacks, which will not make an interest rate decision in September any easier and could call into question the Fed’s long-term independence.
Donald Trump himself had nominated Jerome Powell for the position of Chairman of the Federal Reserve. Nevertheless, he repeatedly criticized him publicly and in a unusually harsh fashion during his first term in office. While US economic growth reached an impressive 3 percent in 2018, core PCE inflation hit the central bank’s target of 2 percent, and unemployment was at a historically low level of 3.9 percent, the US president repeatedly expressed his anger about interest rate hikes and the monetary policy of the US central bank. As Trump apparently wanted to give the strong US economy a further boost through low interest rates and a weaker USD, he even raised the question immediately after Powell’s speech in Jackson Hole in 2019 as to whether Powell or Chinese President Xi was America’s greater enemy. Powell’s change of course in 2019 was justified by the central bank as a means of insurance against a slowdown in global economic growth – but for many investors at the time, it felt like the central bank was bowing to pressure from the US administration.
In addition to the pressure on Jerome Powell, Fed Governor Lisa Cook is currently facing serious accusations from the US administration. Since the Fed chairman once again rejected calls for aggressive interest rate cuts – “Bring down the Fed Rate, NOW!” – due to the unclear data situation, he was labeled a “stubborn moron” later and his removal from office was apparently considered. While the dismissal of the top monetary policymaker is obviously very complicated from a legal standpoint, the US administration attempted to create facts on August 25, 2025, and ordered the firing of Lisa Cook on the grounds of alleged mortgage fraud. The Fed governor rejected the allegations, took legal action against the dismissal, and emphasized that the US president did not have the authority to take such a step.
A possible dismissal is particularly significant because Lisa Cook was appointed by Joe Biden and is a member of the Federal Reserve’s Board of Governors. These governors are appointed for fourteen years and, alongside the Fed chair, have permanent voting rights among the twelve members of the FOMC, which, in its function as a committee of the central bank, is responsible for setting US monetary policy, including setting the key interest rate and buying and selling government bonds. The remaining four members are selected on a rotating basis from the eleven regional Fed presidents and are only entitled to vote for one year. Lisa Cook is therefore expected to remain in office until 2038. The replacement of her position would shift the balance of power within the Board of Governors in favor of Donald Trump, as four of the seven permanent votes on monetary policy would then be cast by “his” candidates. This could potentially lead to monetary policy that is more aligned with the interests of the current US administration.
Until recently, Jerome Powell appeared outwardly unimpressed by the pressure weighing on him. He repeatedly referred to the central bank’s dual mandate—price stability and maximizing employment—and made it clear that the US government’s higher trade tariffs could lead to rising consumer prices and possibly slower economic growth. In fact, the core Producer Price Index (PPI) recorded its largest monthly increase since March 2022 in July 2025, rising by 0.9 percent. Since the core Consumer Price Index (CPI) rose by only 0.3 percent over the same period, the question arises as to whether manufacturing companies will increasingly pass on higher prices to their customers in the future. According to Powell, core PCE inflation is 2.9 percent, well above the 2 percent target. At the same time, the Fed chairman says the risks to inflation are tilted to the upside.
Nevertheless, in his speech in Jackson Hole on August 22, 2025, Powell opened the door to interest rate cuts before the end of the year. The weak performance of the US labor market in July — payroll job growth slowed to an average pace of only 35,000 per month over the past three months, down from 168,000 per month during 2024 — points to a slowdown in the labor market. From Powell’s perspective, the risks to employment growth are tilted to the downside. In addition, according to Powell economic growth declined from 2.5 percent last year to 1.2 percent in the first half of 2025, largely reflecting weaker consumer spending. In conclusion, the top monetary policymaker emphasized that “the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance” – a statement that the capital market interpreted as a signal for interest rate cuts in September.
Jerome Powell apparently considers the risks to the labor market to be greater than the risk of a sustained rise in inflation due to aggressive trade policy. Whether pressure from the US administration played a role in this decision will remain the secret of the Fed chairman. We continue to monitor developments at the world’s most important central bank very closely. The independence of the Fed is essential for confidence in the US capital markets. The temptation for politicians to lower key interest rates for their own purposes and at the wrong times would be too great – the rampant inflation of the 1970s serves as a cautionary example. The US administration cannot change the institution and function of the central bank for the time being, but it can try to influence its members. The successors to Jerome Powell and, possibly soon, Lisa Cook would therefore be well advised to strengthen the independence of the US central bank.
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