As the White House has ratcheted up its criticism of Powell, speculation has grown about potential leadership changes at the Federal Reserve. Donald Trump has been outspoken in his demands that Powell cut interest rates, a concern that El-Erian shares. But the scandal advanced by the Trump administration over Powell’s oversight of a $2.5 billion office renovation is not part of El-Erian’s critique.

El-Erian, who has been an inflation hawk for nearly all of the 2020s, largely agrees with the White House on inflation, even if they may be coming at it from different angles. Trump likely wants rate cuts as a way to spur the economy ahead of the 2026 elections, although Trump demanded rate cuts in similar fashion in the last decade, when both he and Powell were in their first terms. The cuts that eventually resulted surprised economists as inflation stayed under control for a time—but the surge in 2021 was the biggest since the early 1980s.

El-Erian was on the record then and now about saying that Powell undermined the Fed’s credibility on inflation throughout this episode. On Tuesday, he stated that if Powell were a CEO in the corporate world, he would have already been forced out over the central bank’s recent stumbles. Among the missteps: the Fed’s much-derided assertion in 2021–2022 that inflation was “transitory,” which delayed rate hikes and contributed to price spikes; the 2022 “insider trading” scandal involving several senior Fed officials; and the 2023 banking crisis around the collapse of Silicon Valley Bank, which prompted what El-Erian termed a “damning” internal report.

In the first regard, El-Erian was often critical of Powell’s reference to “transitory” inflation, calling it a “protracted gross mischaracterisation” in a December 2022 op-ed for the Financial Times. At that time, Powell was awaiting an Inspector General report on stock trading during the pandemic by two central bank governors. They were ultimately cleared, but the watchdog chastised both of them—and indirectly Powell—for undermining public confidence in the central bank, the same topic with whic El-Erian is still concerned. Although Powell was never accused of wrongdoing regarding the trading controversy, the episode led to stricter rules for central bank leaders and further eroded public confidence. Finally, the collapse in Silicon Valley Bank was unrelated, but chief regulator Michael Barr criticized lax oversight in an April 2023 report, arguing that it was partially responsible for one of the biggest banking failures in American history.

El-Erian, former CEO of PIMCO and current president of Queen’s College, Cambridge, told Axios and other outlets that Powell should bow out to defend the credibility and autonomy of the central bank. “If your objective is to protect the independence of the central bank,” he told Axios, “then it’s better that he step down than he stays and the attacks multiply.” El-Erian warned that further assaults could undermine trust in the Fed with serious economic consequences.

A ‘lame duck’ chair, and more attacks to come

Powell, whose term expires in May 2026, is in a weakened position, El-Erian argued. The announcement of his replacement is expected by year end, and with a limited ability to steer policy, he is essentially a “lame duck.” El-Erian argued that continuing attacks—regardless of their origin—will escalate so long as Powell remains in the role, increasing the risk of lasting reputational harm to the Fed.

Treasury Secretary Scott Bessent’s comments on Monday, calling for an examination “of the entire Federal Reserve institution,” only heightened El-Erian’s concerns. “That is a red flag,” he said, suggesting the administration is widening its criticism beyond Powell to target the Fed itself. El-Erian predicted that if these political threats to central bank independence persist, markets could see a weaker dollar, higher interest rates, and a more volatile yield curve—destabilizing the economy further.

Independence versus political pressure

Trump’s criticism of Powell has also expanded to the cost and management of the Fed’s $2.5 billion renovation of its historic Washington, D.C. headquarters. Trump and his administration have accused Powell of mismanaging the project and potentially violating oversight rules, describing the renovations as “ostentatious” and possibly “fraudulent.”

Specific complaints have included claims about luxury features such as rooftop gardens, private dining rooms, and executive elevators—many of which Powell refuted as either standard building updates or mischaracterizations by the administration. Trump has suggested that Powell’s handling of the office renovation could be sufficient grounds for removal, although no evidence of fraud has been presented.

In contrast, economist El-Erian’s opinion of the real scandal is based on institutional credibility and internal scandals. El-Erian points to a series of reputational crises under Powell’s leadership, with special emphasis on a high-profile insider trading scandal involving several senior Fed officials. In 2021 and 2022, some key regional Fed presidents were revealed to have been trading securities during periods when they had privileged policy information.

Although Powell himself was cleared of wrongdoing by an independent watchdog, El-Erian argues that these scandals have eroded public confidence and harmed the Fed’s credibility. The economist emphasized that the best outcome would be for the attacks to cease and for Powell to serve out his term in peace—though he considers that highly unlikely.

El-Erian said the best-case scenario is for Powell to stay and attacks on the Fed to end, but he doesn’t see that happening, making clear his conviction that a voluntary departure by Powell could help stem the tide and limit further damage.

For this story, Fortune used generative AI to help with an initial draft. An editor verified the accuracy of the information before publishing.