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A Workable Government
President Donald Trump seems poised to nominate a replacement for Jerome Powell, whose term as Federal Reserve chair ends in May, although he may continue to serve on the board until January 2028. There has been a lot of concern for months about whether Powell’s replacement — and the Trump administration in general — would unwind the Fed’s independence.
It’s a question that matters for the banking industry and beyond. If investors lose faith in the Fed’s independence and its ability to control inflation, bond investors could ditch the 10-year Treasury. That, in turn, could increase the cost of financing the federal government’s $38 trillion debt as well as affect interest rates for businesses, banks and homeowners across the economy.
Trump has repeatedly threatened to fire Powell for not pushing rates lower fast enough. The chair is one person on the Fed’s Federal Open Market Committee, which voted last week to lower the federal funds rate by one-quarter of a percentage point to a target range of 3.5% to 3.75%. Trump recently told The Wall Street Journal that interest rates should be “1% and maybe lower.” He also thinks the Fed chair should consult him about where to set interest rates. Plus, his administration moved to fire FOMC member and Fed governor Lisa Cook on allegations of mortgage fraud. (She has not been charged with a crime.)
However, concerns that Trump could upend the Fed’s independence have died down in recent weeks, according to Van Hesser, chief macro strategist for the rating agency KBRA Holdings. In the Journal interview, Trump said he was leaning toward nominating National Economic Council Director Kevin Hassett or former Fed Governor Kevin Warsh. Both those candidates and Treasury Secretary Scott Bessent, who appears to be vetting candidates for Fed chair, have credibility in a marketplace that values Fed independence, according to Hesser. The process has been “done in a way that’s going to preserve Fed independence,” he says. “Cooler heads have prevailed.”
And while the Supreme Court is ready to take up the issue of whether the president can fire Cook, the conservative judges appear to view the Federal Reserve as unique compared to other agencies. "I think the court is convinced that an independent Federal Reserve is crucial to a workable government,"
said Peter Margulies, a law professor at Roger Williams University in Rhode Island, speaking to Reuters.
• Naomi Snyder, editor-in-chief for Bank Director
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