But Powell said he’d stay as governor until “the investigation is well and truly over,” and promised “to keep a low profile” and support the new chair.
By Wolf Richter for WOLF STREET.
Powell announced during the press conference following the FOMC meeting that:
- This was his “last Press Conference as chair” of the Federal Reserve Board of Governors; the term expires on May 15, and congratulated Kevin Warsh on being the next chair.
- He would not resign from his position as governor on the Board “for a period of time” until the investigation by the Department of Justice “is well and truly over with transparency and finality” – the same test he’d laid out at the last meeting – adding: “I am encouraged by recent developments and watching the remaining steps in this process carefully.”
His term as governor on the Board doesn’t end until January 2028. If Powell doesn’t resign from the 7-member Board of Governors by May 15, Miran will have to bow out to make room for Warsh so that Warsh can become a governor and chair.
Powell kept his departure date open: “I will leave when I think it’s appropriate to do so.”
At issue is the Fed’s independence, which has come under attack and is now getting fought over in the courts, including the Supreme Court. “I worry these attacks are battering the institution and putting at risk the thing that matters to the public, which is the ability to conduct monetary policy without taking into consideration political factors,” as Powell said that meeting.
Powell formulated his departure test during the FOMC meeting in March: “I have no intention of leaving the Board until “the investigation is well and truly over with transparency and finality.” And he stuck to it at the moment.
When asked if he is confident Warsh would stand up to political pressure, Powell said, “He testified very strongly to that effect in his hearing, and I’ll take him at his word.” And he added, “Every administration looks at our tools and thinks it would be good to re-purpose those to serve other purposes. But that is dragging us into politics and fiscal policy, so we’ve resisted it.”
Highlights of what Powell said about these issues in his prepared remarks:
“This is my last press conference as Chair, and I will close with a few thoughts. First, I want to congratulate Kevin Warsh on his advancement out of the Senate Banking Committee this morning. This is an important step forward, and I wish him well as that process continues.”
“I welcomed the announcement last Friday by the U.S. Attorney for the District of Columbia that she had closed the criminal investigation. She also noted, however, that she would not hesitate to restart the investigation.”
“Over the weekend, the Department of Justice provided assurances that they will not reopen the investigation unless there is a criminal referral from the Fed’s Inspector General. And, absent that referral, if they do appeal the recent court decision, they would not seek as part of that appeal to restart the investigation or send new subpoenas.”
“I have said that I will not leave the Board until this investigation is well and truly over, with transparency and finality, and I stand by that.”
“I am encouraged by recent developments, and I am watching the remaining steps in this process carefully. My decisions on these matters will continue to be guided entirely by what I believe is in the best interest of the institution and the people we serve.”
“After my term as Chair ends on May 15, I will continue to serve as a governor for a period of time, to be determined.”
“I plan to keep a low profile as a governor.”
“There is only ever one Chair of the Federal Reserve Board. When Kevin Warsh is confirmed and sworn, he will be that Chair. Once sworn in as Board Chair, his new colleagues will elect him to chair the FOMC as well.”
“I am confident that the Fed will continue to do its work with objectivity, integrity, and a deep commitment to serve the American people.”
Then in the Q&A, Powell responded to some questions:
“My concern is really about the series of legal attacks on the Fed, which threaten our ability to conduct monetary policy without considering political factors.”
“I want to note this has nothing whatever to do by verbal criticism by elected officials.”
“I worry these attacks are battering the institution and putting at risk the thing that matters to the public, which is the ability to conduct monetary policy without taking into consideration political factors. It is so important for our economy and the people that we serve that they can depend over time on a central bank that operates that way free of political influence.”
“I’m waiting for the investigation to be well and truly over with finality and transparency. And I’m waiting for that. And I will leave when I think it’s appropriate to do so.”
“I’m staying because of the actions that have been taken. I had long planned to be retiring. And the things that have happened really in the last three months left me no choice but to stay until I see them through at least that long.”
“My intention is not to interfere. I was a governor for almost six years. And the tradition is at the Fed that Governors, who understand how difficult the role of Chair is, and as a soon-to-be-former Chair, I do understand how hard it is to get consensus with 19 strong minded people. You work with the Chair. You try to be heard but also collaborate with the Chair and try to support the Chair when you can. When you can’t, you can’t. And I think that is the attitude that people generally take, and that’s the attitude that I’ll take.
“Every new Fed Chair has the same situation, which is you’ve got 18 colleagues on the FMOC. Eleven vote during any year, and your job is to create consensus, talk to them, understand them, be inside their thinking, and be able to pull them together and get consensus and move. And that’s what every Fed Chair has to do. And I think Kevin [Warsh] has the capabilities and skills to be very good at that.”
“That’s something I’d never do, the Shadow Chair thing. I don’t know what the exact specifics of it will be, but I’m going back to being a governor. I respect the role of Chair.”
“I propose to be a very constructive participant in that process really out of respect for the office of the Chair.”
Regime change.
Powell was the architect of mega-QE during the pandemic, whereby the Fed purchased $3 trillion in Treasury securities and MBS in March, April, and May 2020, and then continued buying these securities at a rapid pace, thereby driving down the 10-year Treasury yield below 1% and 30-year fixed mortgage rates below 3%, triggering a massive asset-price explosion, including the home-price explosion from mid-2020 through mid-2022.
Powell was also the architect of the “ample reserves regime,” which the Fed formalized in early 2020 just before the pandemic. The purpose of the regime is a larger balance sheet than the Fed could have if it veered back to the old pre-QE system of supplying liquidity only when demanded.
Warsh has lashed out at these policies for years and wants a smaller balance sheet. He stuck to that even during his confirmation hearings before the Senate Banking Committee. Warsh will have to build a majority among the 12 voting FOMC members to change these policies. And that will not be instant. And any shift in policy is going to be implemented slowly.
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