What does the standoff over Trump's Fed chair nominee mean for interest rates?

Senators alternately grilled and praised President Donald Trump's selection to be the next chair of the Federal Reserve, Kevin Warsh, on Tuesday in a partisan clash over a position of critical importance to the nation's economy.

An unusual complication, however, loomed over the proceedings: Warsh appeared unable to garner enough support to advance his nomination so long as the Department of Justice continues its unprecedented criminal investigation into the Fed's current chair, Jerome Powell.

The probe, which focuses on Powell's alleged false testimony to Congress about an office renovation, threatens to derail or delay Warsh's prospects. Powell has rebuked the investigation as a politically motivated effort to influence interest-rate policy.

The standoff amounts to a "game of chicken" between the Trump administration and Congress with potential implications for Fed independence and interest rates, Darrell Duffie, an economics professor at Stanford's Graduate School of Business, told ABC News.

Here's what to know about whether Powell could serve beyond the end of his term and what it means for the economy:

Will the Senate confirm a new Fed chair before Jerome Powell's term ends?

Maybe, but the upper chamber is running out of time. Powell's term as Fed chair ends on May 15, less than a month from now.

Warsh's nomination must first receive majority support from the Senate Banking Committee before it reaches the Senate floor. Sen. Thom Tillis, R-N.C., a potentially decisive vote on the committee, says he will not move to advance Warsh's nomination until the DOJ resolves its investigation into Powell.

But the Trump administration has shown no sign of winding down the investigation. Prosecutors from the U.S. attorneys office in Washington made an unannounced visit to the Fed last week, but were turned away.

When asked on Tuesday whether the investigation is counterproductive if it impedes Warsh's confirmation, Trump told CNBC, "Well, it is and it isn't."

"You have to find out why a thing like that could happen," Trump said about the cost overrun in the Fed's building renovation, appearing to reaffirm his commitment to the probe into Powell.

Could Jerome Powell remain Fed chair after his term ends?

Yes, he could. Powell said last month he would stay in the position on an interim basis until Warsh is confirmed.

"If my successor is not confirmed by the end of my term as chair, I would serve as chair pro tem until he is confirmed. That is what the law calls for -- that's what we've done on several occasions," Powell said at a press conference in Washington, D.C., on March 18.

For his part, Trump told Fox Business last week he would fire Powell if the current Fed chair attempts to remain in office past the end of his term. Federal law allows the president to remove the Fed chair for "cause" -- though no precedent exists for such an ouster.

Even after his successor is confirmed, Powell could remain on the Fed's policymaking board until 2028, retaining a role in the central bank's interest-rate policy. Powell has not indicated whether he intends to remain on the board.

What does the standoff mean for interest rates?

The standoff over the next Fed chair arrives at a delicate moment for the central bank, as it grapples with a challenging combination of elevated inflation and sluggish hiring.

Under Powell's leadership, the central bank has held interest rates steady at two consecutive meetings so far this year. Before that, the Fed cut interest rates a quarter-point three straight times.

Last month, Powell said the Fed is "well positioned to determine the extent and timing of additional adjustments to our policy rates," noting that the implications of the Iran war were "uncertain."

It is unclear whether Warsh would mark a significant departure from Powell. During his term as a Fed governor in the late 2000s and early 2010s, Warsh gained a reputation as an interest-rate "hawk," meaning he generally preferred higher interest rates as a means of ensuring low and stable inflation.

In recent months, however, Warsh has voiced support for lower interest rates, rebuking the Fed's concern about inflation risk posed by a flurry of new tariffs issued last year. Those remarks came before the U.S.-Israeli war with Iran, however, which sent inflation soaring last month.

"The Iran war in particular has really thrown a wrench into all the calculations," Duffie said. "All bets are off."

If the independence of the Fed were to be meaningfully eroded, it could eventually lead to lower interest rates, according to Duffie. Central bankers beholden to political leaders tend to favor lower interest rates as a means of boosting short-term economic activity and generating public support, he added.

But that posture poses a major risk in the possibility of years-long inflation fueled by a rise in consumer demand, untethered by interest rates.

A burst of high inflation in the 1970s and 1980s offers a cautionary tale, some analysts previously told ABC News.

Before the inflation took hold, President Richard Nixon had urged then-Fed Chair Arthur Burns to cut rates in the run-up to the 1972 presidential election, in which Nixon won a second term. Nixon's advocacy is widely viewed as contributing to lower-than-necessary interest rates that allowed inflation to get out of control.