Peter Navarro’s Fox News op-ed this weekend is, on the surface, a warning about Powell’s shadow power over Warsh’s Fed. Read differently, it is a permission slip.
The argument goes like this: three Biden-appointed governors — Philip Jefferson, Michael Barr, and Lisa Cook — remain on the Fed board. Together with Powell, they already form a four-vote majority on the seven-member board. If Waller defects to their side, that majority becomes a supermajority.
As Navarro stated:
“Warsh would have the title; Powell would control the reaction function.”
But consider when this framing will prove useful for Warsh and the Trump administration. If any future rate hike damages the economy — jobs, housing, growth, as Navarro’s headline warns — the blame can be neatly attributed to Powell’s shadow majority. Warsh doesn’t have to take any responsibility — he is just the victim of Powell’s shadow tyranny. It is intriguing to see how far this narrative will be developed prior to the next rate decision.
There is another strand in Navarro’s argument that is very noteworthy: He identifies Waller as the pivotal figure — the vote that would either defend or break Warsh’s position.
This is not really about rate decisions, as rate decisions are controlled by the FOMC, not the Fed board. Trump-friendly Fed officials are still outnumbered in the FOMC.
As we noted previously, the board majority may help the Trump administration solve the rate problem by using their real leverage: the board’s largely untested power to remove regional Fed presidents “at will”. A Waller “defection”, in this reading, would be the act that fully unlocks that threat even when Powell hands the governor seat to another Trump appointee.
Except Waller has already answered. At Brookings in April, he was direct: “[Using the board majority to fire Reserve Bank presidents] is not the design of the system. Period.” Powell endorsed the same view at his final press conference. The board majority gambit requires Waller’s cooperation — and Waller has already closed that door.
What Navarro’s piece does, then, is reopen the pressure campaign on Waller, this time with higher stakes. If Waller holds, Warsh’s Fed remains constrained. If he doesn’t, the architecture of Fed independence that Powell and Waller spent the spring defending starts to look a lot more fragile.
