Why Trump Will Decide the Next Fed Chairman Regardless of Senate Dynamics

Jerome Powell’s recent public criticism of the Trump administration opened the door for President Trump to name the new leadership of the Federal Reserve Board without needing Senate approval.

In a rather unprecedented move, Fed Chairman Jerome Powell released a video accusing the Trump administration of attempting to undermine the Fed’s independence. He suggested, without evidence, that the Justice Department’s investigation into his Senate testimony and renovations at the Fed’s headquarters were merely excuses to target the Fed over its interest rate decisions, which he claimed weren’t aggressive enough to please the president.

Such statements are, well, dubious at best. President Trump promptly refuted any involvement with the subpoena issued. Jeanine Pirro, the U.S. Attorney for D.C., responded to Powell’s claims, saying her office’s outreach to the Fed had been disregarded, thus prompting prosecutors to enforce a response. She emphasized that the subpoena was not a threat.

“The term ‘indictment’ was used by Mr. Powell, not by anyone else,” Pirro mentioned. “If they had just engaged with us, this situation could have been avoided.”

The timing of Powell’s announcement seems to have been designed to shock the Trump administration and perhaps stir up some financial instability. Yet, if chaos was the aim, it appears he missed the mark; stock prices remained steady, and the bond market showed no signs of panic.

Senators Believe They Can Block Trump’s Nomination to Replace Powell

The political landscape reacted quickly to the news of the Justice Department’s subpoena, with some senators expressing outrage. Senators Thom Tillis and Lisa Murkowski announced that they would withhold their votes on any Fed nominee from President Trump until the investigation was concluded. Given that Republicans hold a slim Senate majority, this could mean Mr. Trump faces obstacles getting a new chair approved.

So, what happens once Mr. Powell’s term concludes with no confirmed successor in place? It seems Tillis and Murkowski might be overlooking a key detail—perhaps they think Mr. Powell can just continue in his role. However, if there’s no defiance from President Trump, the leadership of the Fed could shift to Philip Jefferson, who is currently the vice chairman and was appointed by Biden. That could be a significant miscalculation on their part.

The Federal Reserve Act stipulates that when a director’s term expires, they can remain until a replacement is confirmed, but this does not apply to the chairperson. Once a chairman’s term is up, they lose their position unless nominated again by the president and confirmed by the Senate. While they can remain on the board if their governor’s term is unexpired, it could threaten the authority of the next chairman. Generally, it’s customary for the chair to resign from their governorship soon after their term ends.

Interestingly, the Federal Reserve Act allows for the vice chairman to take charge in the absence of the chair, but this might not cover scenarios where the chair’s term simply lapses with no one stepping in.

Lessons from Arthur Burns’ Tenure

Looking back to 1978 during the Carter administration, lawyer research revealed that Arthur Burns, who had been appointed Fed Chairman by Nixon, faced criticism that the Carter administration didn’t want to make a change despite rising inflation. Even after Burns’s term ended, there were expectations he’d remain. Yet, Carter, influenced by key advisors, made an abrupt decision to announce Burns’ replacement in December. However, Miller, Burns’ intended successor, wasn’t confirmed in time, highlighting the lack of clarity in the Fed Act on handling vacancies.

In situations where no clear vacancy-filling protocol exists, the president maintains the authority for temporary appointments necessary for the executive branch’s functionality. An Assistant Attorney General noted that should the chair’s term end with no successor in sight, the president could appoint a current Fed governor to act as chair temporarily.

Notably, President Carter ultimately appointed Burns as acting chairman until Miller’s confirmation, deviating from automatic processes. Burns chose not to continue serving as a board member, feeling it might distract from Miller’s leadership.

Fast forward to 1996 with Alan Greenspan, whose second term expired without official confirmation for his third until months later. He was informally considered interim chair until the Senate took action.

Now, as for Powell, while his initial term has lapsed, he could remain in a capacity that allows for proper governance, pending the Senate’s confirmation of a new chairman.

Trump’s Options Could Be Limited, But He Will Still Decide on Powell’s Successor

If the Senate blocks Mr. Trump’s nominee, he still retains the power to appoint an acting chair. However, he won’t have complete freedom here either; potential candidates must be currently confirmed governors or those awaiting confirmation. Likely, he might appoint one of his recent nominees, such as Christopher Waller, Michelle Bowman, or Stephen Millan, the latter of whom can maintain his seat as long as Trump’s nominations are obstructed.

Yet, there’s another layer of complexity. The president must also win over the Federal Open Market Committee to ensure any appointee can effectively influence policy decisions. The chairman doesn’t solely make calls; a majority vote is required from committee members.

Regardless, once Mr. Powell’s term concludes—whether there’s a Republican-led blockade or not—the choice of who leads the Fed will ultimately fall to Trump, ensuring that someone he selects will take the reins in some form.