Trump Shakes Fed Independence... Powell Likely to Remain on Board

Fed Chairs Customarily Resign Board Seat After Term Ends
Powell's Chairmanship Ends in May
Board Term Runs Until January 2028
Rising Concerns Over Monetary Policy Independence Within and Outside the Fed
Some Republican Senators Boycott

Speculation is growing that Federal Reserve Chair Jerome Powell will complete his term as chair until May and may also serve out his term as a board member. As the U.S. Department of Justice has initiated criminal proceedings against Chair Powell, it is believed that, in order to protect the independence of monetary policy, he may choose to remain as a board member until January 2028, instead of following the usual practice of resigning from the board when his chair term expires.

According to the Financial Times (FT) on the 12th (local time), former Fed Chair Janet Yellen stated, "This indictment will be seen by Fed board members as a signal that President Trump intends to take full control over monetary policy," adding, "Those concerned about independence are more likely to remain on the Fed board, which will reduce the number of seats the president can control."

Within the Fed, this indictment is being viewed as a serious threat to the central bank's independence. Previously, President Trump had publicly criticized Chair Powell, attempted to dismiss Fed Governor Lisa Cook on charges of mortgage fraud, and pressured for interest rate cuts, culminating in criminal proceedings.

The FT noted that President Trump's pressure on Chair Powell to step down could actually backfire. David Wilcox, a former senior Fed official, said, "The reason for indicting Chair Powell with only a few months left in his term is, in my view, an attempt to intimidate the Fed board," adding, "The problem is that Chair Powell is not someone who would easily succumb to intimidation."

Concerns over the Fed's independence are also growing in Washington's political circles. Republican Senators Thom Tillis and Lisa Murkowski announced that they would not participate in the confirmation of Powell's successor while the criminal investigation is ongoing.

Michael Strain, a research fellow at the American Enterprise Institute (AEI), said, "This indictment has made the independence of Powell's successor even more important," and added, "Every senator can participate in the confirmation process for the next Fed chair and vote for or against."

The Fed chair is selected from among the seven Fed board members. The president nominates a candidate, who is then confirmed by the Senate. President Trump has previously interviewed Kevin Hassett, Kevin Warsh, and Christopher Waller, and announced his intention to appoint one of them as the next chair. For this to happen, Chair Powell would need to step down from the board after his term ends, as is customary.

There is also increasing evaluation that the next chair must always demonstrate political independence. Former Chair Janet Yellen stated, "Whoever the successor is, they will be seen as someone who got the position by pledging to follow President Trump's instructions," adding, "It will be extremely difficult to maintain independence, and their standing in the Federal Open Market Committee (FOMC) will inevitably be weak."