Standoff over Federal Reserve chair creates uncertainty amid difficult economic conditions

Under that scenario, Powell could remain as interim chair for months after his term ends on May 15 unless Trump tries to fire him — as he threatened last week — and that dispute likely ends up in court. Even if Trump doesn’t try to fire Powell, the White House could move to replace him as interim chair, another dispute that probably would face a legal challenge.

“This is a completely unnecessary cost to impose on our economy,” Massachusetts Senator Elizabeth Warren, the Banking committee’s top Democrat, told the Globe Monday.

She has been leading the charge against Warsh’s confirmation, citing the former Fed governor’s recent flip from a long-time proponent of higher interest rates to an advocate for lower ones as evidence he would simply do Trump’s bidding instead of acting in the best interest of the US economy.

All of the committee’s Democrats called for Tuesday’s confirmation hearing to be postponed until the Justice Department ends its criminal investigations of Powell and another Fed governor, Lisa Cook, who Trump tried to fire but was stopped by a court order.

“The Senate should not be aiding and abetting Donald Trump’s illegal takeover of the Fed by installing his chosen sock puppet as chair,” Warren said at the start of Tuesday’s hearing. “It’s an invitation for corruption and for economic catastrophe.”

When Warsh declined to say if Trump had lost the 2020 election or cite any aspect of the president’s economic agenda his disagreed with, Warren said it showed “you don’t have the courage and you don’t have the independence” for the job.

But all eyes were on Tillis, who holds the pivotal vote on the committee to advance Warsh’s nomination.

Although he called Warsh’s credentials “extraordinary” and “impeccable,” Tillis spent his time at the hearing criticizing the Justice Department’s investigation of Powell over cost overruns in the Fed’s expensive renovation of its historic Washington headquarters.

“Let’s get rid of this investigation so I can support your confirmation,” Tillis said, asserting the project was not unreasonably over budget. He also said he didn’t think Trump knew the investigation was going to be launched.

But Trump has been obsessed with the project, even personally touring the construction site in July. And on Tuesday, he railed against the project again during an interview on CNBC after being asked if he would consider dropping the investigation so Warsh could be confirmed.

“You have to find out why a thing like that could happen,” Trump said of the cost overruns.

Although a federal judge in March quashed grand jury subpoenas for Powell, prosecutors sent by Jeanine Pirro, a Trump ally who is the Washington, D.C. US attorney, visited the Fed construction site last week.

“Any construction project that has cost overruns of almost 80% over the original construction budget deserves some serious review,” Pirro said on X after news reports of the visit. “And these people are in charge of monetary policy in the United States?”

The continued standoff is starting to frustrate even some Republicans.

“I just would urge the administration to move on from the DOJ investigation of Mr. Powell to facilitate a prompt confirmation of the President’s nominee as chairman,” Representative French Hill, an Arkansas Republican who chairs the House Financial Services Committee, told Politico last week. And Senate Majority Leader John Thune, a South Dakota Republican, told reporters “I think it’s in everybody’s best interest to wrap up the investigation.”

Senator Mark Warner, a Virginia Democrat who sits on the Banking committee, said all the uncertainty at the Fed was not good for the economy.

“I think we need stability” at the Fed, he told the Globe last week. “I think the president’s constant attacks against Jay Powell don’t help anything.”

Tillis also acknowledged in an interview last week that the instability at the top of the Fed “could create a lot of uncertainty among the markets.” But he said he’s not worried because interest rates are set by a 12-member committee of Fed officials headed by the Fed chair.

“I think it’ll work out fine,” Tillis said. “That’s why I’m so dead set on making sure that there’s no inkling of a lack of independence by the president picking and choosing members.”

Warsh, 56, an attorney with Wall Street experience who served on the Fed’s Board of Governors from 2006-11, promised senators he would act independently if confirmed.

The Fed was created by Congress to be insulated from pressure from elected officials so the long-term needs of the economy would take precedence over short-term political goals. Unlike other executive branch employees, Fed officials cannot be fired for political reasons, only for cause.

Trump’s attempted firing of Cook was the first time a president ever took such a step.

“I do not believe that independence of monetary policy is threatened when elected officials state their views on rates,” Warsh told the committee Tuesday. “Fed independence is up to the Fed.”

Asked directly by Senator John Kennedy, a Louisiana Republican, if he would be “the president’s human sock puppet,” Warsh said, “absolutely not.”

It might be a while before he has a chance to prove that.

Powell’s second four-year term as Fed chair ends on May 15, but his term as a Fed governor doesn’t end until 2028. Asked during a March news conference what would happen if a successor is not confirmed by then, Powell said the law calls for him to remain as “chair pro tem” until the Senate acts.

The White House could have a different interpretation of the law. And although it is tradition for an outgoing chair to also step down from the Fed Board of Governors, Powell also said he has “no intention of leaving the board until the investigation is well and truly over, with transparency and finality.”

Told about Powell’s comments last week, Trump told Fox Business, “well then I’ll have to fire him ok? If he’s not leaving on time.” Powell is likely to legally challenge such a move.

Senator Angela Alsobrooks, a Maryland Democrat, told Warsh she was worried that “the president may inject more financial chaos into our economy by illegally attempting to remove Chairman Powell and installing someone else until your confirmation.”

“I expect every financial leader and reporter is watching your words right now, which can move markets, so I’d like to give you an opportunity to reassure them,” she told Warsh, asking if he agreed that the law requires Powell to continue serving as temporary chair.

Warsh declined to be drawn into that dispute.

“I haven’t been advised on that,” he said.

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Jim Puzzanghera can be reached at jim.puzzanghera@globe.com. Follow him @JimPuzzanghera.