The Emperor Has No Mandate

On Friday, May 15, Jerome Powell’s chairmanship of the Federal Reserve ends — and it ends against the backdrop of a sustained criminal investigation initiated by a president furious that his own appointee refused to subordinate monetary policy to electoral calculation. The liberal hand-wringing about institutional independence that has accompanied Powell’s final weeks is correct in its diagnosis and catastrophically insufficient in its analysis. Powell is no martyr. He is no bulwark of democracy. He is a functionary of capital who found himself, through a peculiar alignment of institutional loyalty and macroeconomic circumstance, momentarily occupying the same trench as working people who cannot afford a 3.8 percent inflation rate while their grocery bill climbs 3.6 percent and the average gallon of gasoline crosses $4.50. That these interests briefly coincided does nothing to make him an ally. It makes the political crisis all the more instructive.

To understand the conjuncture, the numbers must be reckoned with in their full brutality. The April 2026 Consumer Price Index report, released by the Labor Department on May 12, showed headline inflation at 3.8 percent year-on-year — the highest reading since May 2023, driven almost entirely by the energy shock precipitated by the Iran war and the closure of the Strait of Hormuz. Gasoline prices stand 28 percent above where they were a year ago; AAA puts the national average at $4.50 per gallon. Core inflation, which strips out food and energy — the two categories that most directly compress working-class household budgets — registers at 2.8 percent, itself rising 0.4 percent on a monthly basis. Housing costs moved up 0.6 percent from March alone. The Federal Reserve Bank of Dallas, in modelling the inflationary impact of the Iran conflict, has calculated that a one-quarter closure of the Strait raises headline inflation by 1.7 percentage points at an annualized rate, and that West Texas Intermediate crude would peak near $94 per barrel in the spring before remaining above $80 throughout the year. Brent crude, as of mid-May, is trading near $105 per barrel — 44 percent above pre-war levels. The International Energy Agency has characterized the Strait of Hormuz closure as the largest supply disruption in the history of the global oil market. The European Central Bank has warned of stagflation for the Eurozone. The United Kingdom faces projected inflation above 5 percent. And in precisely such a context, Trump is demanding that his handpicked successor at the Federal Reserve lower interest rates.

The question of whether it is economically possible to lower interest rates in such an environment admits a simple answer: possible in the technical sense that a committee could vote to do so, and catastrophic in the sense that the consequences would be rapid and severe. Supply-side inflation — inflation generated by the physical disruption of commodity supply chains rather than by excess demand — remains impervious to monetary loosening. Cheaper credit does nothing to extract more oil from a blockaded Strait. It does nothing to rebuild a Saudi refinery struck by drone. What it does is expand the money supply into an environment of genuine scarcity, which is the classical recipe for accelerating price increases. The Fed’s dual mandate — maximum employment and price stability — is currently being pulled in opposite directions by an oil shock that has simultaneously raised prices and begun depressing economic activity; the labor market added only 115,000 jobs in the most recent reporting period, while inflation surges. Here is the stagflation trap, the nightmare scenario of the 1970s, reconstituted by war rather than OPEC cartel action alone. To lower interest rates under these conditions would be to pour accelerant onto an inflationary fire while pretending to address a growth problem.

The imprudence of cutting rates now is far from subtle. It would depreciate the real wages of every worker whose earnings are denominated in dollars, by allowing the purchasing power of those wages to be further eroded by prices rising faster than nominal income. It would transfer wealth upward — from debtors whose real debt burdens would be modestly relieved, to asset holders whose equity portfolios would be reflated at the expense of the currency’s purchasing power. It would signal to bond markets that the United States is willing to subordinate monetary discipline to political necessity, inviting a sell-off in Treasuries that would raise long-term rates regardless of what the Fed decreed about short-term ones. In the most acute scenario — if Kevin Warsh, Trump’s designate as incoming chair, immediately capitulates and begins cutting — the result could be a currency crisis layered atop a supply shock layered atop a tariff-driven import price surge: an intersection of inflationary pressures without modern precedent outside of outright wartime command economies. The question of whether such a trajectory sets up a catastrophe of gigantic proportions deserves a serious answer: yes, it does, and the catastrophe in question would fall overwhelmingly on those with the least capacity to absorb it.

It is at precisely such a juncture that Marxist analysis diverges most sharply from liberal institutional concern about Fed independence, because the Marxist framework refuses to accept that the present crisis is an aberration from an otherwise functional system. For Marx, interest is no natural phenomenon that markets discover and central banks merely calibrate; it is a form of surplus value — specifically, the claim that the owner of money-capital makes upon the surplus value extracted from living-labor by the productive capitalist who borrows that money. In Volume III of Capital, Marx distinguishes between the interest-bearing capitalist, who advances money, and the functioning capitalist, who deploys it productively and must share the resulting surplus value. Interest rates are, in that schema, the terrain on which different fractions of capital compete over the distribution of surplus value — no neutral price signal, but an expression of class relations within the capitalist class itself, and between the capitalist class as a whole and the working-class whose labor generates the surplus being divided.

Inflation, in Marx’s analysis, represents a debasement of the money commodity — a situation in which the real value of the currency falls relative to the commodities it purchases, which is to say, relative to the socially necessary labor time embodied in those commodities. Supply-side inflation, like the present oil shock, represents a genuine increase in the cost of production across the entire economy: energy enters into the production of virtually every commodity, and when its price rises sharply, the value of those commodities rises with it, expressed as higher prices. No illusion, no measurement artifact — a real transfer of value from economies dependent on imported energy to the holders of energy resources, and within energy-importing economies, from wage earners whose nominal wages lag price increases to capital holders whose asset values reflect the new higher-cost equilibrium. The working class bears the weight of supply-side inflation in a specific and brutal way: their wages are set in nominal terms through collective bargaining or labor markets that respond slowly, while prices rise immediately and continuously. Real wages fall. The standard of living contracts. The rate of exploitation — what Marx called the ratio of surplus value to variable capital — effectively increases as workers produce the same output for a declining real wage.

Against such a backdrop, the Marxist position on what interest rates should be doing is emphatically opposed to demanding that they be cut. Supply-side inflation requires supply-side solutions: public investment in alternative energy infrastructure, strategic reserve releases, emergency commodity price controls, rationing mechanisms that protect working-class consumption. These are instruments outside the Federal Reserve’s toolkit entirely, which is why the Fed is — in every crisis, and in the current one — inadequate to the task at hand. What the Fed can do with interest rates is constrain demand, which during a supply shock means suppressing working-class consumption to compensate for the commodity scarcity caused by war. Rate hikes in such an environment are class-targeted austerity delivered through the mechanism of the credit market. Mortgage payments rise. Credit card interest compounds. Small business credit contracts. The working-class, which depends on debt to bridge the gap between stagnant wages and rising costs of housing, education, and durables, is squeezed from both ends — by higher prices and by the higher cost of the credit that temporarily concealed those prices.

Jerome Powell is a centimillionaire private equity lawyer who has spent his career at the nexus of big money and big government. He presided over the Fed’s historically slow response to post-pandemic inflation — a failure whose costs fell almost entirely on workers and the poor, who lacked the financial buffers and inflation-indexed assets that protected upper-income households during the price surge of 2021 to 2023. He is no worker’s representative, no socialist, no friend of organized labor. He is a manager of the capitalist monetary system who has, within the constraints of that system, attempted to execute his institution’s dual mandate with a degree of coherence and independence from the most nakedly short-termist fractions of American capital.

The Federal Reserve, as an institution, exists to manage the contradictions of the capitalist credit system — to prevent the periodic crises of over-accumulation and credit expansion from degenerating into full-scale financial collapse. In doing so, it serves the long-term interests of the capitalist class as a whole, even when it frustrates the short-term interests of particular capitalists who want cheap credit now and will externalize the inflationary consequences onto everyone else. Powell’s insistence on rate independence was no working-class solidarity; it was the Keynesian insight that monetary credibility — once destroyed — takes years of painful disinflation to reconstruct, a process whose costs, as the Volcker shock of the early 1980s demonstrated, are borne overwhelmingly by the unemployed and the indebted. He was defending the long-term integrity of the dollar as the world’s reserve currency, which serves capital’s global interests. The fact that doing so also, incidentally, protected workers from a deeper inflationary spiral does nothing to make the Federal Reserve a working-class institution.

Trump’s attack on Powell is, therefore, no populist challenge to financial capital. It is a conflict within the capitalist class — between the fraction of capital that favors cheap credit, asset inflation, and the short-term electoral sugar of a booming stock market, and the fraction that recognizes the systemic risk of subordinating monetary policy to presidential whim. The Department of Justice investigation into the Fed’s building renovation is, by the admission of sitting Fed officials and independent legal scholars alike, a transparent pretext to change the personnel making monetary policy decisions — a mechanism for asserting executive control over an institution that Congress deliberately insulated from exactly such pressure across 113 years of institutional history. What is happening is the authoritarian reorganization of state functions in the interest of a particular fraction of capital — finance capital allied with fossil fuel interests and real estate, all of which benefit from cheap money in the short run and all of which are insulated, by virtue of their asset holdings, from the inflationary consequences that cheap money generates for those who hold wages rather than assets.

How should Marxists approach the situation? By refusing the trap that liberalism sets and the trap that Trumpism sets with equal determination. The liberal framework asks us to celebrate the Fed’s independence as an end in itself — to treat the insulation of monetary policy from democratic politics as a constitutional virtue rather than as a class-biased arrangement that insulates capital’s money management from the preferences of the majority. The MAGA framework asks us to support executive control over monetary policy in the name of accountability, without acknowledging that the accountability in question runs to a president whose economic agenda is the further enrichment of the American capitalist class at the expense of workers, immigrants, and the global South. Neither framework names the class content of what is actually at stake.

The Marxist position begins with the recognition that no Federal Reserve policy, within the existing framework, can serve the working-class as a primary objective, because the Fed is constituted to serve the stability of the credit system — and the stability of the credit system is the stability of capitalist exploitation. The demand for a Fed policy that actually benefits the working-class is simultaneously a demand that exceeds the Fed’s mandate and a demand that reveals that mandate’s class character. What would such a policy look like? Interest rate ceilings on consumer debt — the credit cards and payday loans through which the working-class absorbs the difference between stagnant wages and rising costs. Directed credit expansion toward social housing, green energy, and public goods, rather than the generalized asset inflation that cheap money produces when it flows into financial markets. Debt cancellation for student loans and medical debt, which function as a private tax on working-class social reproduction. Monetary financing of a public energy program to address the structural supply shock driving current inflation — the direct creation of purchasing power for public investment, rather than borrowing from private capital markets at interest. None of these policies are on offer. None of them can be on offer, within the existing institutional framework, without a fundamental transformation of who the monetary system is designed to serve.

The stagflation horizon now visible to every serious economist — the combination of rising prices and decelerating growth produced by the Iran war shock, the tariff cascade, and the looming disruption of Fed independence — is no accident. It is the convergence of several simultaneous expressions of a system in crisis: imperial military adventurism generating commodity supply shocks; protectionist economic nationalism generating import price inflation; and the subordination of monetary policy to the political needs of an authoritarian executive generating uncertainty premiums in every financial market. Each of these is a product of capitalist contradiction. The working-class, as always, will be asked to pay the bill.

The democratic critique of the Federal Reserve — the argument that monetary policy is too consequential to be entrusted permanently to an unelected committee of bankers and economists — is correct on its face. The working-class should have democratic control over credit allocation. The question is, in whose interest would such democratic control be exercised? Trump’s answer, revealed by every action of his administration, is: in the interest of the fraction of capital that benefits from cheap money now and will externalize the inflation onto the wages of workers later. The socialist answer is: in the interest of the class that produces all value and receives a steadily diminishing share of it. These are irreconcilable class interests, momentarily converging in their criticism of central bank autonomy for entirely opposed reasons. To mistake that surface convergence for political alignment would be among the most consequential errors the Left could commit in the present conjuncture.

When Trump stood beside Powell in the unfinished construction site of the Federal Reserve’s Washington headquarters — performing dominance in front of cameras, embarrassing an institution he could legally neither dismiss nor command — what he staged was a preview of the executive seizure he intended. A sitting president using the Department of Justice as an instrument of monetary policy coercion. A criminal investigation deployed against the chairman of an independent central bank for the stated purpose, admitted by administration officials themselves, of changing who makes interest rate decisions. No constitutional framework designed around the separation of powers anticipated quite so brazen a maneuver, because no such framework imagined that the executive branch would abandon even the pretense of institutional legitimacy in its pursuit of economic control. The pretense has been abandoned. The maneuver was attempted. And the question for the Left — the genuine, class-conscious Left — is whether it will respond by defending liberal institutions that were always instruments of capital, or by building the political capacity to replace them with something that serves the class whose labor makes every institution possible.

As Warsh prepares to assume the chair that Powell vacates on Friday, as the April CPI reads 3.8 percent and Brent crude holds above $100 a barrel and the Strait of Hormuz remains a contested waterway through which one-fifth of the world’s oil once flowed freely, the task for the Left is to name what is actually happening: a class war conducted through the instruments of monetary policy, in which the working-class stands to lose regardless of which fraction of capital prevails — unless it develops the political capacity to impose its own terms on the management of money, credit, and the social surplus that labor alone creates. That is a project for a movement. It cannot be deferred to the next interest rate decision.