Jerome Powell stepped down as Federal Reserve chair, but he did not leave the central bank entirely. He stayed on as a governor. Now the White House says that choice is preventing the administration from putting another Trump-nominated person on the board.
"It's extremely unorthodox that Jay Powell hasn't dropped out," Hassett said on Bloomberg Television. He called the situation "a very unorthodox thing" for a former chair to keep a seat on the board.
"I'm concerned about what his motivations are," Hassett said. The previous day, Hassett remarked that "we're going to have to keep a close eye on that." But Thursday he said, "in the end, this is a problem that Kevin Warsh is going to work out."
When questioned if investigations into Powell were warranted, Hassett responded that "the Fed needs to do its job and they've got great leadership there, and we're going to hope for the best."
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This standoff highlights the ongoing tension between the Trump administration and the independent central bank. With only one Trump-nominated member currently on the board and Powell's term stretching to January 2028, the White House faces a prolonged inability to shape the board's composition through new appointments.
Fed governors serve staggered 14-year terms to insulate them from political pressure. It is quite rare for a former Fed chair to stay on as a governor, as past chairs have almost always resigned from the board once their chairmanship ended. His continued presence on the board ensures that Trump cannot immediately install another ally, maintaining a degree of continuity in monetary policy.
The broader context includes Trump's long-standing dissatisfaction with the Fed's monetary policy stance, which he has argued hampers economic growth. This ongoing friction between the executive branch and the central bank underscores the challenges of maintaining institutional independence while facing political pressure.
The situation is rare and underscores the delicate balance between political influence and central bank independence. Historically, former Fed chairs have left the board shortly after their chairmanship ends, making Powell's tenure as a governor a notable exception.
The Federal Reserve's independence is a cornerstone of its credibility in fighting inflation. By staying on the board, Powell ensures that the committee retains an experienced voice from the previous administration's tenure, potentially moderating abrupt policy shifts. This situation also highlights the long-term impact of the staggered term system, as the current board includes only one Trump appointee among its members.
President Trump has repeatedly called for lower rates.
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