Fedwatchers have been waiting for months to hear whether outgoing Fed Chair Jerome Powell would stay on after his term at the helm of the central bank came to an end on May 15. They got their answer at his final press conference on Wednesday.
After the Fed announced that it would keep rates at its 3.50% to 3.75% rate, Powell said that he would stay on as a Fed Governor after his term ends “for a period of time.”
To the unassuming, it might look like a continuity move, but for those who have been watching the dramatics between the Fed and the Trump Administration, it’s no coincidence. It also represents a significant development for the markets and broader economy.
Powell’s presence threatens Trump’s Fed takeover ambitions
Since returning to office, President Donald Trump has taken a special interest in the Fed. He’s urged the central bank to reduce rates and even taken visits to the central bank, but that’s not all.
The Trump Administration has also flirted with disrupting Fed Independence, largely by bullying members of the FOMC into resigning to free up seats. Much of this bullying has come in the form of politically driven investigations.
Late last year, the Trump DoJ attempted to fire Fed board member Lisa Cook for “mortgage fraud.” A court rebuffed the effort, while a ProPublica report found Trump guilty of the same things he accused Cook of.
Then, the attention turned to Fed Chair Jerome Powell, who he called “Too Late Jerome” in various tirades on Truth Social. The Trump DoJ began an investigation, then subsequently closed it after Congressional Republicans threatened to hold up the appointment of Trump’s new Fed Chair appointee. However, they have not ruled out returning to the investigation.
Powell said during the press conference that he plans to continue serving on the Board of Governors until this investigation is “well and truly over with transparency and finality.”
That’s notable because his presence in the Fed might not only help stave off more politically driven investigations (even though he himself was appointed by Trump), but it also creates potential impediment to Trump’s Fed takeover ambitions.
The 8-4 shock
Wednesday’s FOMC decision might have kept rates flat, but it was by no means uneventful. In fact, there were four dissents, the most in a FOMC decision since Oct. 1992. It likely serves as a warning to the incoming Warsh and the President.
Trump appointee Stephen Miran was a given, issuing his sixth-straight dissent — favoring a quarter-point cut. Miran has favored cuts of up to half a percentage point since leaving the Trump Cabinet for the Fed job last year.
However, in addition, three regional Fed presidents dissented, agreeing with the hold but dissenting on “the inclusion of an easing bias in the statement.” Those three were Beth Hammack of the Cleveland Fed, Neel Kashkari of the Minneapolis Fed, and Lorie Logan of the Dallas Fed.
Shadow Fed Chair?
The timing of their dissent is coincidental considering Powell’s outgoing. It’s also a significant roadblock for the presumptive incoming Fed Chair, Kevin Warsh. He’s currently navigating confirmation hearings, but is ‘next up’ to run the Fed.
Only, it’s increasingly unclear how his presence will really move the Federal Open Market Committee (FOMC), even less when the ex-Chair is still serving in some capacity. At one point, it was thought that Trump’s efforts wouldn’t just result in another Fed Chair nomination but a cornering of additional seats to win lower rates.
Powell said in his remarks that he would “never be a shadow Chair”, but his presence alone will deny the Trump Administration an opportunity to pack the central bank with an additional sympathizer who will act at the whims of the conservative project and Trump Administration, largely at the expense of Americans who are already facing above-target inflation.
The midterms are now finally around the corner, inflation is not improving, and Trump still doesn’t command enough seats to move the needle. To add insult to injury, rates could have been lower by now, if not for the Trump Administration’s role in directly worsening the inflation problem through tariffs (2025) and the Iran War (2026).