Support for Powell’s Continuation as Fed Chairman
New York Fed President John Williams expressed his support for Federal Reserve Chairman Jerome Powell to remain in his position until a successor is chosen.
Powell’s term concludes on May 15th, and while President Trump has nominated Kevin Warsh as his replacement, confirmation may face delays. U.S. Senator Thom Tillis from North Carolina has stated he will withhold his vote until the Justice Department’s investigation into Powell and the Fed is resolved. Furthermore, Democrats have also indicated their unwillingness to support Warsh during the ongoing investigation.
Last month, Powell claimed, without substantiation, that he could continue leading the Fed until a new chairman was installed. He also mentioned that he would stay on the board until the investigation into the Fed’s headquarters renovations was fully resolved. Although his directorship technically lasts until January 2028, typically outgoing chairs resign from the board, barring a rare exception.
Powell inaccurately stated that legal precedent supports his claim to remain in office beyond his term’s expiration. “That’s what the law requires,” he said, referencing past instances, including his own.
Ambiguities in the Fed Chair Position
The Federal Reserve Act allows Fed directors to stay until a successor is named, but it lacks similar provisions for the chair. A 1978 legal analysis indicated that vice chairs can act only when the appointed chair cannot attend, not during vacancies from an unconfirmed successor. If the vice chair is absent, the board may elect an interim chair, but this does not apply if there’s a gap between a term’s end and a new chair’s confirmation.
There’s no legal clarity on what happens if a chair’s term ends before a replacement is confirmed. During the Carter administration, it was established that in such cases, the president could appoint a new chair from current governors, although a former chair needed to be reappointed.
This issue arose in 1978 when President Jimmy Carter opted against reappointing Arthur Burns, leading to uncertainty about who should lead the bank until George William Miller was confirmed. Legal counsel determined Carter could appoint any sitting governor but not Miller, who was not one at that time. Burns remained in his position temporarily until Miller was confirmed.
This historical context perhaps misled Powell into believing he could stay on without formal request from the president, who has previously criticized him harshly. Trump’s calls for Powell’s resignation likely mean he won’t ask him to remain beyond May 15.
Powell had been an interim chair when his first term ended in 2021 but was reappointed for a second term by President Biden, an indirect confirmation of his role. Similarly, Alan Greenspan served pro tempore while awaiting reconfirmation by the Senate after being appointed for a third term.
Notably, no president has continued in office after their term without reappointment, and typically, successors are confirmed before current terms expire.
Legal experts, including Harvard professor Adrian Vermeule, assert that the law doesn’t shield the chairman from presidential removal. While governors enjoy “for cause” protections, this does not extend to the chairmanship, which appears to rely on norms against removal for policy disagreements and to maintain the Fed’s independence.
Currently, the Supreme Court is reviewing a case involving Trump’s attempt to dismiss Federal Reserve President Lisa Cook amid claims of misconduct. Cook’s legal team argues these allegations disguise a political agenda, similar to Powell’s assertions amidst a Justice Department investigation.
Future of Powell as Chairman
In a recent Bloomberg interview, Williams noted that Powell is set to remain chairman of the board and the Federal Open Market Committee unless a new chair is confirmed by the deadline. The FOMC oversees interest rate policy and has a rotating selection of members.
“Chairman Powell has discussed this with the board recently,” Williams mentioned, adding that voting on the leadership role takes place in January, a procedure followed throughout the year. If Warsh is not confirmed by May 15, Williams asserted that the FOMC could continue as if Powell’s term hadn’t expired. This endorsement of Powell’s position from a Fed official is notable.
While technically, the FOMC could nominate Powell even with another governor in the mix, the chair’s influence extends to managing the Fed’s organization. Historically, the FOMC has wielded substantial control over interest rate policies, guiding the New York Fed in executing open market operations to achieve target rates.
Though the FOMC continues to set federal funds market targets, these are not the primary operating tool anymore. The Fed’s asset purchases have led to surplus reserves, diminishing the reliance on federal funds market borrowing. Currently, monetary policy leverages the rates paid on bank reserves, impacting short-term market rates and ultimately influencing long-term borrowing costs.
The investigation into Powell by U.S. Attorney for D.C., Jeanine Pirro, stems from unresponsive queries to his office, with Powell downplaying the inquiry as an effort to prompt interest rate cuts. Trump holds the power to intervene or pardon Powell regarding potential issues tied to the renovation or his statements to authorities.
