Quite vacant: 3 weeks left until Powell’s term ends
There’s uncertainty regarding who will lead the Fed once Mr. Powell’s term ends, especially if Kevin Warsh doesn’t get confirmed by the Senate.
As I touched on yesterday, North Carolina Republican Sen. Thom Tillis is sticking to his position of delaying Warsh’s confirmation while U.S. Attorney Jeanine Pirro continues her investigation into the Federal Reserve. Pirro has stated she doesn’t plan to close this investigation, which raises the possibility that Powell’s term could end without a new successor in place.
Time is an issue here. Powell’s presidency will finish on May 15, which is just 22 days away—15 of those are business days. Mr. Pirro is currently appealing a federal judge’s decision about the investigation’s fairness, and it seems unlikely that the appeal will resolve in the next couple of weeks. Honestly, three weeks is not enough time for the Senate to hold a nomination vote, let alone confirm someone.
If that May 15 deadline passes without a new chair being approved, the legal implications are quite murky. In certain scenarios, the Fed might actually lack a chair for a while.
The law does not specify who will chair the meeting after May 15th.
The law does state that Fed directors can stay in position until a new person is confirmed, but that doesn’t apply to the chairperson. Similarly, while governors cannot be removed without just cause, that rule doesn’t extend to the chair’s role. Traditionally, U.S. presidents haven’t tried to remove the Fed chair, even when there are disagreements on policy. Legal experts often note this as an unwritten rule that helps maintain stability in the Fed’s leadership.
Powell believes he can remain chair if no successor is named, yet the Federal Reserve Act suggests otherwise. According to the law, board members can continue their service beyond their terms until they’ve been replaced. However, it does not explicitly say that the chair will automatically extend their role after their four-year term ends without getting new approval.
Historically, during both the Carter and Reagan administrations, legal advisors concluded that a Fed chair can’t just stay on after their term expires. In fact, a January 1978 opinion during the Carter era expressed this perspective, reaffirmed by a Reagan White House memo in 1983. Though only a sitting governor can become chair, White House lawyers indicated that the president holds the authority to appoint an interim chair to ensure the government runs smoothly.
So, really, it would make sense for the president to name one of the current governors as acting chair. Christopher Waller, Michelle Bowman, or Stephen Millan are potential picks. Waller and Bowman seem more likely because Millan’s still new to the Fed, having served in an interim role whose term recently expired. Though, it’d be reasonable to appoint Millan because having someone new might expedite Warsh’s confirmation process in the Senate; he definitely seems capable of managing monetary policy.
The legal provisions appear to be more about temporary absences than full-blown vacancies. They mention that the board should be chaired by the chairperson, and if they’re absent, the vice chair takes over. If both are gone, the board will select someone to serve as interim chair. This wording suggests it’s meant for a chair who’s simply not present, rather than someone whose term is over with no successor lined up. Interestingly, Philip N. Jefferson, appointed by Joe Biden, is currently serving as vice chair.
This interpretation is supported by legislative history. In 1983, Congress looked at a bill that would have made it clear that when a chairperson’s term ends, the current person remains in position until a successor is appointed. There was also a mention of what happens in the case of a “vacancy in the office of chairman,” indicating that this issue was recognized as needing clarification.
There is a good chance that the Fed chair position will become vacant.
A reasonable interpretation appears to be that the chairperson’s office might just be empty until a new one is named. This would be unusual but isn’t without precedent in federal law. For example, federal judges can go without confirming a successor, just as some ambassadorial positions might remain vacant, with duties passed to someone else. Other federal boards can also operate with vacant positions until approved replacements are made. Notably, the Vacancies Reform Act doesn’t usually apply to multi-member bodies like the Fed’s Board, suggesting that if there’s no acting chair, the position will stay vacant.
This could be by design. The Fed operates as a board of governors, and other laws support its ability to function without a chair. A temporary vacancy in the chair position could pressure the Senate into approving a presidential nominee rather than leaving things as is.
What seems quite unlikely is Mr. Powell appointing a successor himself, or the Board of Governors appointing a chair independently in case of a vacancy. That feels off since it would let the Fed manage its own leadership, which typically reduces accountability to Congress and moves it away from presidential oversight—a situation the law and Constitution generally avoid.
But Powell could then become the Fed’s de facto leader.
While Powell’s official term as Fed chair ends in May, the situation is increasingly complex. His governorship extends until January 2028. Conventionally, a Fed chair steps down after their term, handing over the reins to a new title holder. However, Powell has suggested he won’t resign while Pirro’s investigation is ongoing, and hasn’t clarified if he’ll step down afterward. So, it’s possible he remains as a governor or even in a leadership capacity, albeit without the formal title of chair. Still, he wouldn’t have the chair’s authority in that instance.
The Federal Open Market Committee (FOMC), which is the Fed’s primary monetary policy-setting group, faces its own set of challenges. The chairman is elected for a one-year term—though any member could technically be chosen. This group includes the seven Fed presidents, the New York Fed president, and four rotating members from the other district banks. The FOMC could decide to keep Powell as chairman through the year or select another member who isn’t the current chair.
However, it’s worth noting that the FOMC doesn’t dictate the most crucial aspects of monetary policy. While focus often lands on the federal funds rate (which is what banks pay each other to borrow reserves), the landscape has changed, especially with extensive asset purchases resulting in a surplus of reserves. In this context, the interest rate the Fed pays on reserves has more influence on loans and interest rates throughout the economy. The Federal Reserve Board generally sets this rate, which is typically aligned with the FOMC’s actions, but the Board can operate independently if needed, though it’s unlikely there would be a clear split.
Honestly, I’m skeptical that Senator Tillis really wants to stir up confusion here. Maybe one of his staffers could explain just how uncertain things could become if the May 15 date arrives without a confirmation.
