President Trump’s plan for a more accommodative Fed could backfire so spectacularly that Jerome Powell could stay on as chairman beyond the end of his term, while Stephen Miran, one of Trump’s most loyal supporters on the bank’s rate-setting committee, leaves the institution.
Trump has repeatedly taken aim at the US Federal Reserve chair – often through personal insults – since launching his presidential bid. First, he wanted Powell to keep interest rates high to avoid boosting President Biden’s assessment of the economy. After winning the Oval Office, he began lobbying for lower rates and went to unusual lengths to shape monetary policy, including numerous legal threats.
Last week, he achieved a key objective: finding a replacement for Powell (whose Fed chairmanship ends in May) who is suitably dovish, but doesn’t seem so close to the White House that it spooks markets.
Kevin Warsh, a former Fed governor under Ben Bernanke, did not disappoint markets with his hawkish tone on the central bank’s balance sheet, potentially adding to the decline in precious metal prices. But Warsh may not shape the tone of talks at the base-setting Federal Open Market Committee (FOMC) as quickly as Trump hopes.
That’s because Warsh must go through Senate Banking Committee hearings before being approved, and Democrats on the panel are refusing to move forward until criminal proceedings brought by the Trump administration against Fed members are dropped.
“We urge Chairman Powell and the Governor to delay any nomination process for Mr. Warsh following the alleged criminal investigation involving him. [Lisa] Cook has been terminated,” Banking Committee Democrats said in a statement.
Currently, two members of the FOMC are facing court action: Powell himself and Fed Governor Cook. So far, the U.S. Supreme Court has blocked President Trump’s attempt to remove Cook from his post in September based on claims he fraudulently secured favorable mortgage terms before joining the Fed. Cook has denied the allegations.
Earlier this month, Powell also confirmed that the Justice Department is under criminal investigation in testimony to a Senate committee on the renovation of Federal Reserve buildings. Renovation costs have been a point of contention between Trump and Powell, and the pair argued in July (in front of the world’s media) over whether the budget had gone over.
Democrats added: “The [Warsh] The nomination comes after months of repeated attempts by President Trump and his administration to influence the Fed through threats, including opening criminal investigations against Fed Governor Cook and Fed Chairman Powell. Continued efforts by the president to control the Fed — which should be able to make independent decisions — undermine public confidence in any nominee for the chair at this time.”
