Speculation is mounting that Donald Trump is planning to announce an early replacement for Jerome ‘Jay’ Powell, chairman of the US Federal Reserve – partly in an attempt to undermine the boss of America’s central bank.
Powell’s sin is that he has refused to bend the knee to the president on the subject of interest rates. Trump has now let it be known, in crude, insulting remarks to reporters while on his visit to Europe for the Nato summit at The Hague, that he is considering “three or four” possible successors to the “terrible” and “stupid” incumbent, whose term ends in May next year.
“I mean, he goes out pretty soon fortunately, because I think he’s terrible,” Trump said, before adding that Powell was “average mentally” and had “low IQ for what he does” – which is mostly steadfastly refusing to cut interest rates to mitigate against the so-called “Trump Slump” caused by tariffs.
Powell is one of Trump’s first-term appointees – he was then reappointed by Joe Biden – but relations between the two have soured like milk on a hot day. Firing him early, or even appointing an interim “shadow”, would be an unprecedented move. It could catalyse a market panic. Just ask Liz Truss about the consequences of undermining a central bank’s independence.
The Fed chief is, obviously, a much bigger deal than the governor of the Bank of England. It is a role of global significance, given the US economy’s size and the dollar’s status as the world’s reserve currency.
An attempt to oust Powell would likely end up with the US Supreme Court. Legal scholars have been debating the implications of Trump’s ability to fire the bosses of independent agencies, describing the Fed as a “uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States”.
However, Powell’s seat would get even hotter than it already is with a Trump-appointed “shadow” chief in place, criticising his every move. If that forced his resignation, it would achieve the president’s aims without involving the court.
Who might Trump choose? He may have “three or four” names in mind, but has not said who. Kevin Warsh, a former Fed governor who played a key role during the financial crisis, would surely be among them. He is seen by many as the front-runner, and is someone the president has praised as “very highly thought of”. He was a contender to become Treasury secretary.
Warsh, already seen by many as the de facto “shadow chairman”, has become a fierce critic of the Fed. Which is music to Trump’s ears. But counting against him is his previously hawkish stance on inflation, and thus rates, and especially his independent mindedness. “My fatal flaw is I say what I believe,” he told an audience of finance bigwigs in Boston. That could kill his chances.
US Treasury secretary Scott Bessent is a name that has been drawing attention, despite gushing about his current, high-prestige role which puts him fifth in the presidential line of succession. Bessent has also said he is happy doing whatever Trump wants – and a compliant, loyalist Fed boss is exactly what the President is seeking. Bessent is said to have indicated to insiders privately that he would take the job.
White House advisor Kevin Hassett, director of the National Economic Council, is probably also on the shortlist. However, while he recently said there was “no reason” for the Fed not to cut rates, he has also reportedly ruled himself out of the role.
Chris Waller, a current Fed governor who has recently spoken in favour of rate cuts, rounds out my potential picks. Not personally close to Trump, his star has risen after being an early advocate for lower US rates.
If I were to put money on the top contender for replace Jay Powell, it would be Bessent. But whoever gets it, expect more turbulence and more uncertainty if Trump moves early as part of his war on the Fed chair. We should be used to that by now.
