On Wednesday, Powell diverged from long-standing tradition and announced he will remain on the board until the investigation into renovation of the Fed’s headquarters is truly complete. That came after the Justice Department dropped its investigation but left the door open to a renewed probe.

“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,” Powell told reporters. “I worry that these attacks are battering the institution.”

He dismissed the notion he would be a “shadow” Fed chair and instead insisted that he would keep a low profile and not interfere with Warsh’s leadership. When asked how he would keep a “low profile” by reporters, he even made light of the situation and ducked below the podium.

Such a situation hasn’t happened since 1948, when Marriner Eccles resigned as chairman and remained on the board until 1951. Powell’s term as chairman ends May 15, but his term as a governor ends January 2028.

While he may not linger on the board all the way to 2028, Powell’s break from the norm could be useful for Warsh, who faces a balancing act of a president demanding rate cuts and the reality of elevated inflation due in part to Donald Trump’s own tariffs and the war on Iran.

Easy target for Trump

Inevitably, Warsh will disappoint Trump when the Federal Open Market Committee (FOMC) refuses to lower rates with prices ticking higher. After all, the chairman represents just one vote on the 12-member committee.

But Powell will still be around to act as Trump’s punching bag and take at least some of the flak for Warsh. Powell may also be an easier target for Trump initially than his own hand-picked Fed chief.

In fact, Trump wasted no time blasting Powell’s decision, posting on social media that “Jerome ‘Too Late’ Powell wants to stay at the Fed because he can’t get a job anywhere else—Nobody wants him.” It is important to note Trump himself hired him in 2017.

Trump’s feud with Powell goes back to his first term, which also saw the Fed chair resist the president’s demands to lower rates. And as Trump’s prosecution of his past adversaries shows, he doesn’t let go of animosity easily.

By the time Powell finally leaves the board, inflation might be low enough for the FOMC to feel comfortable lowering rates again. Then Warsh can worry less about angry Truth Social posts.

No more Miran

At the same time, Powell’s continued presence on the board means Fed Governor Stephen Miran has to step down to make room for Warsh.

Trump appointed Miran to the board late last year, and he has consistently called for rate cuts, regardless of what the economic data would suggest.

A vote for immediate easing may not actually help Warsh, as the FOMC typically operates by consensus with chairs exerting their influence via persuasion.

With Miran gone, the FOMC will no longer have a stark outlier making Trump’s argument that lower rates are needed now. That could give Warsh some breathing room to make his own case to his new colleagues.

Debate over ‘looking through’

Warsh will already have his hands full within the FOMC and doesn’t need more dissent. Cleveland Fed President Beth Hammack, Minnesota Fed President Neel Kashkari, and Dallas Fed President Lorie Logan have signaled more hawkishness on rates as inflation heats up again.

They also used the FOMC’s post-meeting statement as a vehicle to offer so-called forward guidance by objecting to the phrase “additional adjustments,” since that implied an easing bias. That came just a week after Warsh basically told the Senate that policymakers talk too much and shouldn’t give so much forward guidance.

Meanwhile, Fed Governor Christopher Waller shifted from his dovish stance in a speech last month titled “One Transitory Shock After Another.” He said he learned from the Fed’s prior decision to treat the 2021-2022 inflation spike as transitory.

“While intellectually it makes sense to look through each shock, with a sequence of shocks, policymakers need to be more vigilant,” he said. “This is because if the shocks hit one after another, they will keep inflation elevated for quite some time. The standard ‘look through’ can become problematic if businesses and households start to believe inflation is persistently high and it affects their price- and wage-setting behavior.”

Inflation has been above the Fed’s 2% target for five years. After the COVID-related spike from supply-chain shocks, Russia’s invasion of Ukraine in 2022 sent energy prices soaring. Then, last year, Trump’s aggressive tariffs boosted prices again.

And in Waller’s view, there are two new shocks hitting the economy today: the collapse in net immigration and the Iran war. The longer the Strait of Hormuz is closed, the greater the chances that higher inflation gets embedded, he warned.

“High inflation and a weak labor market would be very complicated for a policymaker,” Waller added. “If I face this situation, I’ll have to balance the risks to the two sides of the Fed’s dual mandate to determine the appropriate path of policy, and that may mean maintaining the policy rate at the current target range if the risks to inflation outweigh those to the labor market.”

By contrast, Powell has been more inclined to look through recent upticks in inflation as temporary, just as he did with Trump’s tariffs, though he expressed some caution on Wednesday.

“With energy, it’s so hard to say. I mentioned, sort of the textbook, you would look through an oil shock, because they tend to be short-lived and they tend to revert,” he explained. “And monetary policy works with long and variable lags, so you wouldn’t necessarily react right away. I think that is all the more true, given that we’re several years above 2% inflation and that we’re already looking through the tariff shock.”