Trump’s Pursuit of Powell Threatens to Muddle Fed Tea Leaves

The Trump administration’s latest attack on the Federal Reserve has stoked expectations that Jerome Powell will stay on the Board of Governors after his term as chair ends in May — setting up the optics of a rival center of influence inside the world’s most powerful central bank, even if Powell doesn’t want it.

That unusual scenario has gained traction after the Department of Justice served the Fed with grand jury subpoenas last week, an unprecedented move viewed widely as an escalation of President Donald Trump’s efforts to influence monetary policy.

It’s far from clear how the legal process will play out and what decision Powell will ultimately make on his future. Those who know Powell say if he does stay on, he would only do so to protect the institution and would have no interest in playing a role as a shadow Fed chair.

But if the legal development does provoke Powell to stay, it would upend Trump’s stated plans to stack the board with officials who support his calls for steep interest-rate cuts. It could also create a powerful counterweight inside the Fed to whomever Trump picks as the next Fed chair.

Fans of Powell and foes of Trump might cheer at that result. But analysts say that outcome might be confusing for investors, making it difficult to parse which policymaker holds sway and which way rates are headed.

“It really would set up, potentially, dynamics of having a ‘two popes’ situation where financial markets and the public may get a little confused about who’s in charge,” said Loretta Mester, former president of the Cleveland Fed.

While Powell has shown no signs that he wants to assume such a role, the very optics of a former Fed chair staying on the board -— especially one with the weight of Powell’s experience and record defending the institution —- would inevitably be perceived as an alternative voice, said Antulio Bomfim, head of global macro at Northern Trust Asset Management and a former adviser to Powell.

“Knowing him, he would not aspire to be a shadow Fed Chair,” Bomfim said. “But at the same time it is not under his control either.”

Powell Fires Back

Powell has long been coy about his plans, but most Fed watchers had expected he would leave the central bank in May. That outlook was turned upside down, however, by this week’s news of the subpoenas.

In a highly unusual written and video statement released Jan. 11, Powell said the subpoenas were related to his June congressional testimony on ongoing renovations of the Fed’s headquarters. In a barbed rebuttal, he also said the move “should be seen in the broader context of the administration’s threats and ongoing pressure.”

“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president,” Powell said.

It’s that forceful retort that’s led to widespread speculation Powell will stay on at the board.

Powell took up the Fed chair role in 2018, after being nominated by Trump. His underlying post as a Fed governor doesn’t end until January 2028. The president, meanwhile, has said he’s already picked his nominee to replace Powell as chair, but hasn’t revealed who it is. Kevin Hassett, the director of the National Economic Council, is a front-runner, along with former Fed Governor Kevin Warsh.

For his part, Hassett on Friday again pledged to operate an independent Fed if he gets the job, calling it essential for the stability of the economy.

One likely scenario is that the FOMC would seek to cooperate with whomever is appointed chair, though that could change, said Steven Kamin, a senior fellow at the American Enterprise Institute and former division director at the Fed.

“One could imagine that if the new chair were sufficiently divisive, a coalition of FOMC members could end up gravitating toward Powell,” he said.

The blowback to the subpoenas also threatens Trump’s succession plans for Powell. Senator Thom Tillis, a key Republican on the Banking Committee that vets Fed nominees, has vowed to oppose any Trump picks until the matter is resolved.

Officials inside the administration and allies close to Trump are also growing concerned that the latest escalation could galvanize many of the sitting board members and regional Fed presidents, according to people familiar with the matter, making it harder for the new chair to get their way on policy.

Trump’s Grip

For now, the impact on monetary policy is seen as limited. Fed policymakers last month cut their benchmark interest rate by a quarter percentage point for the third consecutive time, after holding rates steady through much of 2025. This month, citing signs the US labor market is stabilizing, they’ve signaled they’re likely to leave rates unchanged until they have more data on inflation and jobs.

If Powell opts to stay on the Board of Governors, the most immediate effect is that it would delay when Trump can name another person to the seven-member board.

The president has mused about having a majority of the board, which has the power to make key decisions regarding personnel, regulation and in other parts of the organization. A majority vote from the board could also be used to remove the heads of the regional Fed banks, who are not presidentially-appointed.

“If the FOMC is reluctant to do what the Trump-appointed chairman wants, and the presidents are the obstacle, then will President Trump start pressing the Board of Governors to fire one or more of the presidents?” said David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution in Washington.

Trump could yet outmaneuver Powell if he succeeds in firing Fed Governor Lisa Cook over allegations of mortgage fraud. That would open the door for the dismissal of any Fed governor, including Powell. The Supreme Court is set to hear arguments in that case on Jan. 21.