The ongoing saga of President Donald Trump's attempts to transform the Federal Reserve has taken another unexpected turn, centering on the question of whether current Chair Jerome Powell will remain after his term concludes.
Powell’s term as the central bank leader ends on May 15, and it's highly anticipated that Trump will nominate a successor well before this date. Treasury Secretary Scott Bessent revealed to CNBC on Tuesday that the much-awaited nomination might occur as early as next week.
Despite this, Powell's 14-year tenure as a governor extends until January 31, 2028.
Historically, outgoing Fed chairs have vacated their governor positions as well, yet Powell might challenge this tradition if he perceives significant threats to the Federal Reserve's independence. This scenario is reminiscent of Marriner Eccles, who, in the late 1940s, remained in his position, viewing his removal by President Harry Truman as politically motivated.
Increasingly Vocal
President Trump has become more outspoken in his desires to influence the Fed. This has manifested in constant criticism of Powell and his colleagues, strategic appointments, and asserting that the president should be consulted on interest rate decisions.
Some Wall Street analysts believe that Trump's potential to further control the Fed Board of Governors and steer monetary policy might persuade Powell to stay. Speculation intensified recently following reports that the Justice Department is investigating Powell for possible criminal prosecution, while Powell has described a related subpoena as a "pretext" for Trump's effort to dominate the Fed.
“The sequence of events makes it much more likely that Powell, [Fed Governor Michael] Barr and others will stay on after May,” noted Krishna Guha, head of global policy and central bank strategy at Evercore ISI, in a recent report.
Though Barr’s term extends to 2032, there had been discussions about his potential departure. Barr, previously the vice chair of bank supervision, resigned shortly after Trump began his second presidential term to preempt a possible replacement move by Trump. He was succeeded by Governor Michelle Bowman, a first-term Trump appointee.
Similarly, Philip Jefferson, vice chair of the rate-setting Federal Open Market Committee, faces the decision to either stay on or leave, although his term doesn't expire until January 2036.