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The one thing absolutely nobody disputes is that Jerome Powell’s life would personally be much, much better if he just let himself retire. At almost 73, Powell has long hinted at his intention to resign entirely from the Federal Reserve after his term as chairman expires in May, even though his term as a board governor doesn’t expire for another two years. After nearly 14 years at the central bank, Powell — who has trudged through the trenches during the failure of the Fed’s decadelong experiment in zero interest rate policy, his failed 2018 attempt to right the ship with quantitative tightening, the central bank’s total surrender to the COVID-19-era ZIRP zeitgeist, culminating in the worst inflationary crisis since the catastrophe of Presidents Richard Nixon and Jimmy Carter, and finally, achieving a soft enough landing with historically full employment maintained as inflation stabilizes below 3% — should be ready to retire from the vicissitudes of the most important finance job on the planet.
Powell would undoubtedly be a happier septuagenarian if he traded the grueling, often thankless weight of U.S. monetary policy for some cushy Ivy League professorship, a seven-figure book deal, and summers far, far from Washington.
But because President Donald Trump wants Powell to prematurely quit so badly, to the point of his Justice Department launching an unprecedented criminal inquiry into a congressional testimony about the renovation of the Fed’s D.C. headquarters, the mild-mannered Powell is dug in.
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As he should be, because the second thing almost everybody agrees on is that the criminal investigation into Powell is purely pretextual.
Powell, who issued an unprecedented statement after receiving the DOJ’s unprecedented subpoena, asserted that the threat of criminal charges was “a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President.”
“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,” said Powell.
And while the president maintains that he had no prior knowledge of the Justice Department opening the investigation into Powell, Trump reiterated that Powell has done “a bad job” because “we should have lower rates,” promising that “that jerk will be gone soon.”
Sen. Kevin Cramer (R-ND), a close ally of the White House, very nearly conceded the quiet part out loud, suggesting that the “win-win for everybody” would be if Powell resigned from the Fed in exchange for the Justice Department dropping the investigation.
The Powell inquiry has instigated Republican uproar in a way very little in the Trump era is capable of causing. Senate moderates such as Lisa Murkowski (R-AK) and lame duck Thom Tillis (R-NC) have pledged to halt any of Trump’s nominations to the central bank until the DOJ case into Powell is closed, blocking indefinitely Trump’s ability to fill Powell’s position as well as Stephen Miran’s seat on the Fed Board of Governors, which expires at the end of this month.
But the biggest backlash has brewed in the Treasury Department, and it’s because of Treasurys. Secretary Scott Bessent, who has spent months orchestrating as seamless a transition between the outgoing Powell and whichever Trump nominee Bessent has groomed to assuage global investors maximally, is reportedly apoplectic over the rogue railroading of Powell, and for very good reason. Bessent understands that, with the national debt creeping toward $39 trillion, he has one job in life: to keep the benchmark 10-year Treasury yield as close to or below 4% and as far from 5% as humanly possible.
Of that $39 trillion national debt, a little more than $10 trillion matures in the next 12 months. The average interest rate on total marketable public debt, a weighted average of the yields on Treasurys spanning from one-month to 30 years, closed 2025 at 3.362%, slightly higher than a year ago but 5 basis points lower than it was in August. And with the debt as large as it is, every single basis point added to the average interest rate amounts to an additional $1 billion in debt servicing costs each year.
This basic arithmetic explains why Trump ultimately backed off his original “Liberation Day” tariffs. While the $11 trillion cratering of the stock market didn’t faze him, the 70 bps explosion in the 10-year yield did, because while an interest rate increase of 0.7 of a percentage point sounds small, that amounts to some $70 billion in new national debt just to finance our existing debt.
Trump may think he is mad at Powell, but really, he is mad at the economic reality that interest rates control the presidency, not the other way around.
On the merits, the Fed is correct to signal a pause in cutting the federal funds rate. Although new job creation may not be too robust, the 4.4% unemployment rate is over a point lower than the postwar average, signaling the economy is close to full employment. Although core consumer price index inflation has dropped to its lowest point since the spring of 2021, 2.6% is still closer to 3% than to the Fed’s maximum inflation target of 2%. Given that markets would always prefer a slower-moving federal funds rate than an unstable target, it is better to let the pro-growth policies of the One Big Beautiful Bill Act go into effect and then consider a resumption of rate cuts in the summer than jump the gun and let inflation creep back up during a midterm election year.
But even when the Fed makes the wrong calls, the tail usually wags the dog and not the other way around.
Recall that even as inflation skyrocketed from well below 2% when Joe Biden assumed the presidency to nearly 8% by the start of 2022, the Fed kept interest rates at zero while continuing to blow up its balance sheet. When Trump excoriates Powell for accommodating Biden’s suicidal fiscal policy of 2021, Trump is 100% correct. Whether Powell was ignorantly swept up in the global groupthink of ZIRP or whether he was intentionally giving Biden what he wanted in the hopes that he could crack down as soon as Biden re-nominated him as chairman (with the not unreasonable suspicion that any other prospective candidate would continue the ZIRP disaster indefinitely), Powell failed at his legally binding mandate to balance the full employment that was already being achieved in droves with the price stability that had blown up into chaos.
And even so, the Fed learned the hard way that interest rates control the presidency and not the other way around. The Fed kept the federal funds rate near zero from 2020 until March 16, 2022, but by then the 10-year yield had snowballed from near zero to over 2%, posting a 100 bps increase in about half a year of the Fed doing nothing. Colloquially, the Fed “refused to raise interest rates” for 16 months, but in practice, it was really just late to the game, stuck catching up to Treasury yields that had raced ahead of the federal funds rate.
Similarly, when the Fed has done what Trump wants and “cut interest rates,” it hasn’t really cut the interest rates that matter in politics. When the Fed cut the federal funds rate by 100 basis points in 2024, the 30-year fixed mortgage rate rose by 100 bps. In the time that the Fed cut the federal funds rate by 75 bps at the end of last year, the 10-year yield rose by about 20 bps.
Trump can try to push the limits of presidential power and subsume the political independence of the Fed, but interest rates — that is, the ones that actually matter: Treasury yields — can’t be controlled so easily. When Trump floated a trial balloon one morning last July and leaked that he was indeed firing Powell, Treasury yields surged in minutes before Trump quickly reversed course and pledged he wouldn’t actually fire the Fed chairman. Similarly, Treasury yields jumped the morning after Powell broke the news of the subpoena, and they’ve only calmed down as the reports of Republican rancor indicated that friendly fire will hamstring Trump’s ability to seize the Fed without a fight.
The last president who was dumb enough to believe he could control interest rates and not the other way around did not politically survive to experience the worst of his consequences. As I wrote last August about Nixon’s 1970 appointment of his personal friend Arthur Burns as Fed chairman:
“Despite inflation sharply spiking as a result of former President Lyndon B. Johnson’s ‘Great Society’ (and Nixon’s refusal to undo it in any meaningful way), Nixon successfully pressured Burns into slashing the federal funds rate from 9% to south of 4%. In arguably the most impeachable act of his presidency, Nixon then went on to blow up Bretton Woods to intentionally devalue the dollar. Although Nixon successfully juiced the economy enough to secure his reelection, the long-term consequences for consumers were so disastrous that we understand them in a single term: Stagflation.
The average 30-year fixed mortgage rate rose from 7% when Nixon was elected to 10% by the time of his resignation. The 10-year Treasury yield’s spike lagged a bit behind, but ultimately rebounded against the Fed’s intentions; the 10-year yield closed higher by the end of Nixon’s presidency than the start, and by the time President Ronald Reagan was elected, interest rates paid by the federal government rose to the double digits.
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In part, this was due to inflation, but even more so, the millions of investors in Treasurys who set prices through the laws of supply and demand simply lost faith in the government’s ability to maintain the value of the greenback and responsibly manage its debt. The only difference today is that federal spending now consumes a quarter of our annual economic output, not a mere 18%.
The public should have little consequence that either party’s politicians have a real interest in constraining the powers of the presidency. But even if Trump can control the Federal Reserve, he cannot control the billion-plus bond investors who determine the real interest rates of U.S. Treasurys. If Trump continues course, he’ll have to find out the hard way that interest rates control the presidency, not the other way around.