President Donald Trump has stated he has "no plan" to fire Federal Reserve Chair Jerome Powell "for now," despite an ongoing Justice Department investigation into the Fed's $2.5 billion headquarters renovation and rising political tensions over interest rate policy. The decision places the central bank in a precarious position, with its independence under scrutiny and persistent inflation delaying anticipated rate cuts.
The DOJ has served the Fed with grand jury subpoenas related to the renovation project and Powell's congressional testimony. Powell has framed the probe as political pressure, stating, "This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions — or whether instead monetary policy will be directed by political pressure or intimidation." Trump dismissed concerns about the probe's motivations, while signaling the investigation's findings could later provide grounds for removal, despite legal limits requiring "cause" to fire a Fed governor.
The political drama unfolds against a backdrop of stubbornly high inflation. Recent data shows core wholesale prices (PPI) climbed 3.5% over the past year, the steepest increase since March. The core Consumer Price Index (CPI) remained at 2.6% year-over-year in December, above the Fed's 2% target. Economists, including Stephen Brown of Capital Economics, estimate the Fed's preferred core Personal Consumption Expenditures (PCE) index could rise to 3%, up from recent estimates of 2.8%.
This elevated inflation is complicating the path to rate cuts in 2026. The Fed's latest Beige Book reported emerging tariff-related cost pressures being passed to consumers. Fed officials are split on the outlook: Philadelphia Fed President Anna Paulson expects tariff-driven inflation to fade and foresees "modest further adjustments" to rates. In contrast, Fed Governor Stephen Miran projects an aggressive 150 basis points of cuts in 2026, while Minneapolis Fed President Neel Kashkari warns cutting too fast could worsen inflationary pressures.
The Fed is widely expected to hold rates steady at its upcoming January 29-30 meeting, maintaining the current range of 3.5% to 3.75%. Trump indicated he plans to nominate Powell's successor "over the next few weeks," with potential candidates including White House economic adviser Kevin Hassett and former Fed Governor Kevin Warsh.
