Ten Things to Know About Fed Leadership and the Path to a New Fed Chair

The topic of Federal Reserve leadership has become a hot issue recently. Here are 10 key points to keep in mind about Fed leadership and the nomination process for Fed Chair.

1. Jerome Powell’s term as Chair of the Board of Governors of the Federal Reserve expires in May 2026; his term as one of the seven governors on the Board does not expire until 2028. In my view, President Trump will not nominate Powell for another term as Fed Chair.
   
   
2. I think Powell will resign from the Board of Governors when his term as Chair expires. However, that is not inevitable. Remaining as a Governor is not unprecedented. When Marriner Eccles served as Chair from 1934 to 1948 but was not renominated by President Truman, Eccles remained on the Board of Governors and continued to serve out his term as a Governor until 1951.
   
   
3. I do not think President Trump will try to fire Powell. If Trump does try, I believe Powell would take the issue to federal courts. Neither Trump nor the Fed want to fight this in court, in my view.
   
   
4. The law requires that the Fed Chair be a member of the Board of Governors. There are no vacancies now.  
   
   
5. Adriana Kugler's term as Fed Governor ends on 31 January 2026. Barring resignations, this will be President Trump's only opportunity to put someone new on the Board of Governors.  
   
   
6. Unless President Trump wants to pick someone currently on the Board, he will need to nominate the new Governor with the intention to nominate this person for Fed Chair. I don’t think he can count on Powell resigning to open another vacancy. In my view, the only plausible candidate for Chair currently on the Board is Christopher Waller, who was put on the Board during the first Trump administration.
   
   
7. If President Trump wants the new Governor to eventually become Chair, the slot must be filled on 1 February 2026. The Senate usually takes months to hold hearings and vote on a Fed nomination. The person who will replace Kugler needs to be nominated by late summer 2025, in my view. Of course, the president could take his time and leave the post open, but he has every reason to fill it fast. I believe whoever gets the nomination for the vacancy will be presumed to be the future Chair nominee and the shadow Fed Chair in the meantime.    
   
   
   
   
8. Who might get the nod? Plausible nominees includes former Fed Governor Kevin Warsh, Treasury Secretary Scott Bessent, National Economic Council Director Kevin Hassett and former World Bank President David Malpass, all names repeatedly mentioned in the press. Other candidates, such as Fed Governor Chris Waller and Fed Governor Michelle Bowman, remain possibilities, but I think remote ones. I put Warsh and Bessent as the most likely possibilities, because both have market experience, both have worked at the Treasury Department and neither are academics.
   
   
9. Powell is still Chair, and the FOMC (Federal Open Market Committee) backs him. The Fed treasures its independence and may be more reluctant to ease because it does not want to be perceived as caving to political pressure. We believe the Fed will ease again late this year because we forecast a weakening labor market, which is already showing strains. Concerns that the trade war will spike inflation appear to be making the Fed cautious. President Trump does not approve of the Fed’s caution, making him even less likely to nominate Powell for another term in my view.
   
   
10. Beyond the near-term challenges of the trade war, I see a bigger long-term challenge for the Fed: how to contain inflation with a steady rise in the debt-GDP ratio.  “R-star” (the policy rate in a normal economy) may gradually creep up, and federal interest payments are likely to soar. Will the Fed choose fiscal dominance (when government policy influences monetary policy) or monetary dominance (when monetary policy steers the economy)? I don't envy the future Fed Chair’s position.  

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