Fed Chair Powell could stay past his term

OPINION:

Next week, Jerome Powell will chair the Federal Reserve’s interest-rate-setting committee, but perhaps not for the last time.

With U.S. Attorney Jeanine Pirro continuing to investigate Mr. Powell’s statements to Congress regarding renovations of the Fed’s headquarters, Sen. Thom Tillis, North Carolina Republican, is unlikely to permit the Senate Banking Committee to clear Kevin Warsh’s nomination to succeed him as chairman of the Federal Reserve Board.

Mr. Powell will likely serve as chairman after his term expires May 15 and may lead the Open Market Committee when it convenes in June.

Adding to this institutional uncertainty, the economic outlook is clouded by disruptions to labor and commodity markets, making it mind-bogglingly difficult for the Fed to accomplish its mandate to maximize employment and achieve price stability.

Even before the Iran war, hiring in the private sector had virtually frozen.

President Trump’s tariffs are intended to disrupt supply chains — impel businesses to source more domestically of what they sell at car dealerships, stores and online and, in any case, less from Chinese suppliers.

U.S. imports from China are down, but purchases have shifted significantly to other foreign sources such as Mexico, Vietnam and Taiwan.

The huge global trade deficits persist because we need to borrow abroad to finance epic investments in artificial intelligence and a federal deficit that has grown from 2.9% of gross domestic product in 2016 to about 6% in 2026.

Those capital inflows permit us to consume more than we produce, such as for defense, Social Security and health care, by importing more than we export.

Outside AI and data centers, domestic business investment is hardly growing. New factory construction fell in 2025, as did manufacturing employment.

Mr. Trump’s deportation policies have radically reduced the number of foreign workers entering the labor force each month.

Whereas the economy created 135,000 jobs per month during the first Trump and Biden administrations, it’s now capable of adding 50,000 to perhaps 70,000 jobs, with unemployment steady.

Outside health care, which is heavily government subsidized, employment has contracted.

Only 21,000 jobs were created monthly from December 2024 through March. Health care added 33,000 jobs, while the rest of the private and public sectors shed jobs.

Some sectors, such as social assistance and leisure and hospitality, gained, while others, such as insurance and manufacturing, shed positions.

Many workers are being displaced by artificial intelligence — roles are being combined and redefined — and workers who lose their positions face daunting job searches.

A recent Goldman Sachs report estimates that AI is eliminating about 16,000 jobs a month.

At the same time, however, new roles are emerging.

An analysis by LinkedIn found AI created about 640,000 new positions from 2023 to 2025 — about 27,000 jobs a month.

In juxtaposition, those estimates indicate AI may be a net jobs creator or at least neutral.

New opportunities are emerging at all levels.

About one-third of new positions were for heads of AI. Others include staff to write software to automate tasks, forward engineers that AI and software companies send to customers to teach employees how to use the new tools, and data annotators that label data to train AI agents.

All this helps explain the mystery of how GDP grew 2.1% last year while employment, outside health care, contracted.

The Fed’s interest rate increases would do little to help this process. It might slow the AI build-out but would do little to contain inflation.

According to the March jobs report, wages are growing at a 3.5% annual rate. Coupled with productivity growing at about 2%, that is consistent with the Fed’s inflation target of 2% a year.

In March, the consumer price index rose 3.3% on a year-over-year basis. Much of that was the continuing pass-through of tariffs — U.S. businesses and consumers pay 90% of those taxes, and only 10% are shifted to foreign exporters — and a war-induced jump in oil and other commodity prices.

Rising prices for gas, diesel and consumer services, such as airline tickets, are apparent. Yet disruptions to Persian Gulf industries and shipping caused by the war are also raising international shipping, air freight and domestic trucking rates and pushing up prices for aluminum, fertilizer and helium to fabricate semiconductors.

In the coming months, those will filter into consumer prices for groceries, cars, computers, heating fuels and many services, including rents for homes and apartments.

That will harden household expectations that elevated inflation will continue.

This inflation is supply-driven. Raising interest rates to curtail consumer and business demand wouldn’t help because so many of these phenomena are driven in international markets by disruptions to production and shipping from the Persian Gulf.

Mr. Powell would do well to punt on interest rates. He likely will get another chance in June because Mr. Tillis, who is retiring from the Senate in January, isn’t likely to budge until Ms. Pirro ends her politically motivated witch hunt.

• Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.