Transition at the Federal Reserve: What’s Next for Powell?

As Federal Reserve Chairman Jerome H. Powell’s term comes to an end in May next year, there’s a strong chance that President Trump will appoint new leadership. But it’s important to note that Powell isn’t required to leave the Federal Reserve completely; he could continue as a member of the Board of Governors until 2028.

This scenario has gained traction both inside the central bank and in the White House, influencing how Trump is addressing certain short-term vacancies that he’s guaranteed to fill.

Recently, Trump indicated he might opt for a temporary appointment for an open seat before potentially filling it longer-term later. However, time is of the essence. If Powell chooses to remain on the board after stepping down as chairman, the upcoming vacancy might be Trump’s only shot at appointing a successor by May.

Such a move would allow Trump to alter the Fed’s policies with a new alliance among the board’s seven members.

Historical Context

This situation, though modern, has historical parallels—most notably a standoff between President Harry Truman and Chairman Mariner S. Eccles in the late 1940s. In 1948, Eccles faced a setback when Truman opted for Thomas McCabe as chairman instead of reappointing him. But Eccles didn’t resign and continued to serve as a governor, leading the Fed in opposing White House efforts to lower long-term interest rates to manage postwar debt.

Eccles effectively galvanized internal resistance, labeling the administration’s approach as “monetary subordination.” His stance eventually contributed to a significant agreement with the Treasury Department in 1951, which marked a pivotal moment in the Fed’s journey toward independence.

While Eccles’ decision to stay may have been contentious at the time, it’s largely overlooked today. Still, his experience could be relevant for Powell as Trump prepares to reshape the Federal Reserve.

Trump’s Dilemma

Currently, the administration must figure out how to handle the vacancies left by Coogler, with his term ending on January 31, 2026. The appointee could remain on the board until a successor is appointed.

This week, Trump mentioned that he would likely choose a temporary appointee. But the clock is ticking. The Senate won’t reconvene until September, and permanent positions often require a new 14-year term—not just a simple board appointment.

If Powell decides to resign next year, the path forward will be clearer. However, if he, like Eccles, opts to hold on, Trump’s options will be more limited. At the moment, two sitting governors—Christopher Waller and Michelle Bowman—are Trump’s appointees.

In this shifting landscape, the cooler seat, or the seat of the chairman, becomes crucial. If Trump wants to bring someone in from outside the current board—perhaps figures like former Governor Kevin Warsh or White House economic adviser Kevin Hassett—an appointment will need to happen soon.

Federal Open Market Committee Structure

The Federal Open Market Committee (FOMC), responsible for setting U.S. monetary policy, includes 12 voting members. This group comprises five of the seven members from the Governor’s Committee and 12 Regional Federal Reserve Bank presidents. One of those presidents—the one from New York—holds a permanent voting position, while four others rotate each year. All regional bank presidents attend meetings, but only the designated five vote on policy.

Potential Complications

Although installing a temporary chair might appear straightforward, analysts suggest that such candidates could face challenges from the outset. They may struggle to align publicly with Trump’s calls for aggressive rate cuts while needing the support of other governors to wield real influence.

Trump has consistently criticized Powell, labeling his tenure as a “disaster” for not responding promptly to inflation. He desires a successor who can expedite interest rate reductions.

The expectation is for a rate cut in September, with further cuts anticipated by the year’s end. Market forecasts imply that the Fed may reduce rates an additional three or four times next year, potentially lowering the benchmark to around 3%.

Given this context, names like Warsh, Hassett, and Judy Shelton circulate within the administration as viable replacements. Currently, Trump has claimed that Treasury Secretary Scott Besant hasn’t considered a role at the Fed, but Besant and others close to the president are engaging in candidate evaluations. Some believe that if Powell vacates his governor’s position next year, Besant could emerge as a strong contender.

What Will Powell Do?

For the moment, Powell hasn’t indicated whether he’ll remain on the board after his chairmanship ends. However, if he does, he will be fulfilling the legal requirement of a 14-year term and can stay until a successor is confirmed.

If he chooses to stay on, he may find himself echoing Eccles’ historical decision to resist leaving the board despite external pressures. Should that occur, Trump, who has already expressed dissatisfaction with his appointments, may realize he’s at odds with the Fed leaders even after his chairmanship has concluded.

Some in the administration speculate that a compromise akin to the Fed-Treasury Accord could be achievable. In this scenario, Trump might agree to appoint Waller as chairman in exchange for Powell stepping down—a move that would allow Trump to fill another position. Waller is a Trump appointee and is viewed favorably by colleagues in the Fed, likely positioning him as a less politically charged alternative compared to Hassett, a long-time Trump associate.