Powell vows not to be shadow Fed chair, just a low-profile governor
Finally! Jerome Powell announced his intention to stay at the Fed board after his term as chairman ends on May 15. The amount of time he will remain at his governor position, which will only expire in Jan 2028, is still to be determined, as Powell said it will depend on whether the legal attacks by the Donald Trump administration are “well and truly over with finality and transparency.”
Exciting news for us at EconReporter, as this is the “reverse shadow Fed chair” scenario that we suggested back in July last year. Though Powell refused to give us the total satisfaction; “That’s just something I would never do, the shadow chair thing,” he said in what will likely be his last Fed press conference.
But, then… Jay, what do you do in the shadows?
Powell insisted that he would be a low-profile governor on the Fed board. As he made clear during the press conference, he didn’t want any kind of war with Warsh.
When asked by Financial Times’ Claire Jones about his view on whether he agreed with Warsh’s reservations toward post meeting conferences and dot plots, his first answer was “I’m not going to give him any advice through you today here.”
He went on to support the new chair’s right to examine the US central bank’s communication strategy. “I think every incoming chair takes a look at communications and it’s a very healthy thing…if that happens, [I] feel like it’s going to happen, that’s a completely appropriate thing [to do],” Powell said.
In response to a later question, he added: “I don’t know whether that [the press conference schedule] has to remain that way… it’s just something people have become used to.” So, even though he found that these press conferences are “helpful” for delivering a unified message for the whole FOMC, Warsh will have Powell’s blessings if he seeks to review them.
Overall, Powell used the conference to repeatedly offer his respect to the new chair. “I respect the role of chair. I, you know, was a chair. I was a governor for six years, and I know what that’s like… So, I got a sense of what it was and I had real sympathy for how hard it is to get that group to consensus…I don’t want to add to that unnecessarily. That means [I will] try to support the chairs, where the direction the chair wants to go,” he said.
So, no “WAR”, just “Sh!!!!” for Powell.
Warsh, Waller, and Powell Close the Door on Using the Fed Board Majority to Fire Reserve Bank Presidents
A major concern raised in our July piece “Trump appointees will get Fed board majority when Powell is gone – and it matters” is that when Powell leaves the Federal Reserve Board of Governors, the Trump-appointed governors will hold a majority in the board and potentially give them the power to fire any regional Fed Presidents “at will.”
Over the past couple of weeks, three major players in this potential plot denied the possibility of it happening.
First among them was Warsh. During his Senate Banking Committee hearing he was asked whether the “regime change” he wanted for the Fed included the firing of regional Fed presidents? He answered: “I mean policy regime change”; a potential rejection that could use some more clarification.
Then, came Governor Chris Waller. During the Q&A session of his talk at the Brookings Institution, Waller was asked by David Wessel, director of the think tank’s Hutchins Center, “if someone said to you as a governor, we’d like you to consider firing some of the Reserve Bank presidents because we don’t like their views on interest rates, what would you say?”
“Well, that’s not the design of the system. Period,” Waller said.
Powell also chimed in on this subject during the post FOMC presser. Asked about his opinion on the proposal of modernizing regional Fed system put forth by Waller in the Brookings Institution speech, Powell intentionally brought up the topic of the Fed board’s supposed power to fire Reserve Bank presidents: “The other thing he(Waller) touched on was the idea of removing reserve bank presidents from office over different views on monetary policy.”
“And I would I would just agree with him so strongly that that would be the beginning of the end of of the Fed’s ability to to make monetary policy independently. If every administration could come in and do that, you’re you’re just another cabinet agency at that point. That’s not something that I would support. Chris said the same thing,” Powell said.
Since the idea of a Trump-appointee Fed board majority requires Waller’s cooperation even after Powell leaves. As Waller stands firm on not accepting this idea, I think I can put that idea to bed.
Too bad Treasury Secretary Scott Bessent didn’t get the memo. In an interview on Fox Business, the now-famous “Powell staying as governor is a violation of Fed norms” speech, he added that Powell’s decision was an insult to Warsh, Waller and Vice Chair for Supervision Michelle Bowman, implying that Powell’s sole motive was to block what he called “Republican nominees” from getting a Fed board majority.
If only Bessent were aware that Waller and Powell were both sharing the same view that they should bury this Fed board majority obsession…
