The US Federal Reserve (Fed) is perhaps for the first time in its history fighting such a serious battle for independence. Tensions between central banks and politicians always exist because the nature of politics requires producing short-term results: lower interest rates, more growth, more jobs, etc. However, what is good in the short term for an economy is not always good in the long term. Eating a sweet treat on a whim can lead to obesity and related health problems in the long run. Similarly, inflating demand "on a whim" leads to inflation, high cost of living, and worsening income distribution in the long term. Therefore, to steer politicians' short-term goals toward long-term price stability and sustainable growth in the economy, central banks are given the assurance of independent decision-making from political pressure. For this purpose, the terms of office for the president and vice president are legally protected for 14 years.

During Trump's first term, there was also pressure on the Fed to "lower interest rates and stimulate the economy." However, at that time, the pressure remained at the rhetorical level and did not have a concrete impact on the Fed's decisions. In a comparison I made, I found that political pressure is particularly prevalent among populist leaders, but in countries with strong institutional structures, this pressure does not affect central bank decisions. My findings showed that despite intense pressure, institutional independence protected the Fed and, consequently, price stability in the US.

The second term, however, is proceeding in a completely different direction. This time, there are not just rhetoric, but concrete steps aimed at weakening the institutional structure and increasing the chairman's power. First, criticism and a campaign to discredit Powell began, based on the grounds that excessive spending on the renovation of the Fed building was concealed from Congress. Subsequently, these criticisms escalated to a much more severe level, and a criminal investigation was launched against Powell. Previously, Lisa Cook, another FOMC member, was taken to court over allegations of mortgage fraud, but the Supreme Court rejected the request for her removal. The escalation of the pressure to directly target the Fed Chairman after Cook constitutes a clear attack on the independence of the Fed, which lies at the heart of global financial markets.

It was at this point that Powell, who had remained silent until then and avoided commenting on fiscal policy, let alone politicizing monetary policy, released a short video on Sunday, January 11th, and shared it on the Fed's YouTube page. In the video, Powell explicitly stated that the real purpose of the investigation was to shape interest rate decisions according to presidential preferences, and that this was a pretext to put pressure on the Fed. Emphasizing that no one, including the Fed Chairman, is above the law, Powell was initiating institutional resistance, not a personal fight for reputation. To interpret Powell's resistance as a personal battle would be naive. It should be understood as the resistance of a central bank in a developed country whose institutional independence has been attacked.

The FOMC meeting on March 18th took place in an environment of intense uncertainty, immediately following the US and Israeli operations against Iran. The Fed did not change interest rates, revised its year-end inflation forecast for 2026 from 2.4% to 2.7%, but maintained its forecast of expected interest rate cuts during the year. Powell stated that the upward revision in the inflation forecast was not solely due to oil prices, and that the lagged effects of tariffs had not yet been fully seen. However, he indicated that the downward trend in inflation would become more pronounced once the tariff effects had passed and the duration of the war became clearer, essentially saying, "We have done what we could; don't look to us for the cause of inflation." But I think the most interesting part of this meeting wasn't the macroeconomic indicators, but Powell's message regarding his term in office and the independence of the Fed. In response to a question, Powell said, "Central bank independence allows us to fulfill our mandate of price stability," adding that this is standard practice in developed countries and democracies, and that there are even central banks more independent than the US, thus delivering an important message.

Powell's term as Fed Chairman expires on May 15, but as a governor, he has the right to remain on the FOMC and vote on interest rate decisions until January 31, 2028. He has clearly stated that if a new chairman is not appointed by May 15, he will continue in his role as interim chairman and will not resign from his governorship until the investigation is complete. There is an important detail here: the Senate confirmation of the new Fed Chairman nominee, Kevin Warsh, is being blocked by Senator Tillis until the investigation against Powell is concluded. Therefore, Powell's continued presence on the board makes the investigation politically costly for the administration. Until now, Powell has always deflected questions about the future, responding to questions like, "Trump wants to remove you from office, what do you say?" with, "I am currently focused on the decision of the current meeting." This time, however, he has drawn a clear roadmap. He has explicitly stated that the investigation does not intimidate or frighten him, and that he will remain in his position until the investigation is finished and that chapter is closed. He added that he has not yet decided whether he will wait until the end of his term as governor if the investigation concludes before January 2028.

What would have happened if Powell had resigned while the investigation was ongoing? The threat of prosecution could have become an effective method of removing central bank officials who do not succumb to political pressure on interest rate decisions. Every future Fed chairman might think that they could face the same treatment if they resist political pressure. Furthermore, his resignation would have weakened his January 11th framing, as he himself had characterized the investigation as a pretext. Resigning while the investigation was ongoing would have created the impression that the accusations were serious enough to force him to resign, thus undermining that narrative. Powell is saying several things when he says he will remain in office until the investigation is complete. On one hand, he is demonstrating that using the justice system as a tool to intimidate the central bank will not work. On the other hand, he is reminding us that the independence of the Fed is based not only on the law, but also on decades of established traditions and expectations. If a sitting president could be removed through legal intimidation, this tradition would be broken in a way that would be very difficult to repair. Powell seems aware that he is in a unique position to defend this norm precisely because he is the target.