Powell Makes Rare Appearance to Discuss Regulation, Sidesteps Monetary Policy and Resignation Rumors

TradingKey - On Tuesday morning (U.S. Eastern Time), Federal Reserve Chair Jerome Powell delivered a brief speech at a regulatory conference focused on the capital framework for large banks. Despite intense market anticipation for comments on monetary policy or the growing political controversy surrounding his position, Powell made no mention of interest rates, economic outlook, or the ongoing political firestorm. Instead, he remained strictly focused on bank regulation.

Powell said the purpose of the meeting was to conduct a comprehensive review of the capital framework for large banks, ensuring that all regulatory components work together effectively to safeguard the stability of the financial system. He emphasized that capital requirements, leverage ratios, enhanced capital standards for systemically important banks, and stress testing must be evaluated as an integrated whole — not in isolation.

He described the Fed as a “dynamic institution” that remains open to feedback and committed to refining its regulatory framework. Powell expressed appreciation for the participants’ contributions and said he looked forward to hearing their insights.

While the speech was narrow in scope, it underscored the Fed’s effort to maintain a professional posture amid mounting political pressure, redirecting attention back to its core mission of financial stability and regulatory oversight. At a time when speculation over his future is intensifying, Powell’s decision to appear at a technical regulatory meeting — and say little beyond the agenda — sent a clear message of restraint and prudence.

Economist Commentary:

Mohamed El-Erian, Chief Economic Adviser at Allianz, publicly urged Powell on Tuesday to step down voluntarily in order to protect the independence of the Federal Reserve. El-Erian stressed that while resignation is not the “ideal outcome,” it may be the second-best option compared to the ongoing erosion of the Fed’s institutional independence.

El-Erian warned that the central bank is facing a serious institutional crisis. If the Fed’s policy independence continues to weaken, it could trigger severe consequences: diminished confidence in the U.S. dollar, leading to depreciation; rising long-term interest rates and a steepening yield curve; and higher funding costs that ultimately undermine U.S. fiscal and economic stability.

TradingKey - Tensions between Federal Reserve Chair Jerome Powell and the Trump camp continue to escalate. On Sunday afternoon, July 21, a White House official stated that while President Trump has no current plan to fire the Fed Chair, he still demands immediate interest rate cuts.

On July 17, Republican Congresswoman Anna Paulina Luna formally accused Powell of committing perjury during two congressional hearings, alleging he misled lawmakers about the true cost and luxurious elements of the Federal Reserve’s headquarters renovation project. Although Powell has proactively requested a federal regulatory review of the construction work, the political backlash has not subsided.

Trump allies are seizing on the allegations to undermine Powell’s credibility. Earlier, Trump reportedly signaled during meetings with lawmakers his desire to remove Powell from office before the end of his term. While Powell’s current term runs until May 2026 — and he was originally appointed by Trump in 2018 — the relationship between the two has now completely broken down.

White House pressure on the Fed is intensifying, driven primarily by frustration over the pace of monetary easing. Trump has repeatedly attacked Powell in public, calling him “slow and wrong” and urging him to “leave early.” He argues that in today’s high-debt environment, the Fed is cutting rates too slowly, thereby increasing the cost of financing the federal deficit. Despite inflation and labor market data constraining further loosening, the Trump administration continues pushing for massive fiscal expansion, which could add trillions of dollars in new debt over the next decade.

U.S. Treasury Secretary Scott Bessent stepped forward on Monday, stressing that the independence of the Federal Reserve must be respected — an effort to curb executive overreach into monetary policy. Yet, as the election approaches, the boundary between politics and central banking faces one of its most serious challenges in decades.

Analyst View:

James van Geelen, analyst at Citrini Research, recommends a "buy two-year, sell ten-year" U.S. Treasury trade.

The rationale: If the next Fed Chair yields to Trump’s pressure for rate cuts, short-term interest rates are likely to fall. At the same time, accommodative policy — combined with growing concerns over the Fed’s independence — could fuel long-term inflation expectations, pushing up yields on longer-dated Treasuries. This trade, known as the “Powell hedge,” bets on a widening yield spread amid policy uncertainty and market tension.