President Donald Trump has nominated former Federal Reserve Governor Kevin Warsh to succeed Jerome Powell as chair of the U.S. central bank, a move that analysts say has refocused market and investor attention on Powell's immediate plans.
Analysts at Barclays highlighted the procedural and political questions now surrounding Powell’s status. Under current practice, Powell would need to inform the president if he intends to resign from the Fed after his term as chair ends in May. By contrast, Barclays notes, Powell’s appointment as a Fed governor would remain in force until January 31, 2028, and if he chooses to remain a governor beyond his chairmanship he would not be required to notify the White House.
Barclays analysts pointed to precedent in assessing likely timing. They noted that Janet Yellen, who preceded Powell as Fed chair, submitted her resignation letter to the president 18 days after Trump announced his nomination of Powell in November 2017 - or 75 days before her term was due to end. If Powell follows a similar pattern, Barclays argued, he might send a resignation letter in the second half of February.
But the Barclays team also emphasized that Powell’s timing could be deferred. They said he might delay deciding whether to step down until two legal matters are resolved: the Department of Justice completing an investigation into his conduct related to renovations at the Fed’s headquarters, and the Supreme Court ruling on whether Fed Governor Lisa Cook can retain an injunction that would allow her to remain on the board.
Those unresolved matters have added to uncertainty about the Fed’s leadership. Speculation over Powell’s future has increased since the Trump administration opened a criminal investigation into his activities surrounding the renovation of the Fed’s headquarters. Powell has denied any wrongdoing and has said the probe was politically motivated and intended to influence the Fed’s interest rate policy.
Tension between Powell and the president has been a recurring theme. The analysts noted a longstanding disagreement over monetary policy, with Trump frequently pressing the Fed to quickly and aggressively reduce borrowing costs to provide a boost to the economy.
Concerns about the independence of the central bank have been heightened by the administration’s attempt to remove Governor Lisa Cook from the Fed. The White House’s effort to fire Cook over allegations of mortgage fraud is unprecedented, and during a Supreme Court hearing last month justices appeared skeptical of the administration’s arguments. The court was weighing whether to grant the administration’s request to lift a judge’s order that currently bars the president from immediately removing Cook from the Fed board.
The nomination of Warsh, and the ensuing timing questions about Powell’s next steps, create a window of uncertainty for markets and policymakers. How quickly Powell decides to act - and whether the DOJ investigation and the Supreme Court’s decision over Cook are resolved - will be watched closely by investors, economists, and financial-market participants.
Summary
President Trump nominated former Fed Governor Kevin Warsh to replace Jerome Powell as chair. Barclays analysts say Powell must notify the White House if he intends to resign after his chair term ends in May, though his governor term runs until January 31, 2028. A precedent set by Janet Yellen suggests a resignation could arrive in the second half of February, but Powell may delay until a DOJ investigation into renovations at Fed headquarters is resolved and the Supreme Court rules on Lisa Cook’s injunction allowing her to remain on the Fed board.
Key points
- Trump has nominated Kevin Warsh to succeed Jerome Powell as Fed chair; the nomination could face a contentious Senate confirmation.
- Powell must tell the president if he plans to resign as Fed chair after his term ends in May; his term as a Fed governor continues until January 31, 2028.
- Barclays notes a precedent from Janet Yellen and suggests Powell could resign in the second half of February, though he may wait for legal developments.
Risks and uncertainties
- Ongoing Department of Justice investigation into Powell's renovation-related activities could delay or influence his decision - market sectors sensitive to central bank leadership and confidence, including banking and fixed income, are affected.
- The Supreme Court's decision on whether Governor Lisa Cook can retain her injunction may shape the Fed board's composition and heighten concerns about the central bank's independence - this carries implications for policy-sensitive sectors such as financials and interest-rate-sensitive utilities.
- The prospect of a contentious Senate confirmation for Warsh could prolong leadership uncertainty at the Fed, with potential effects on market volatility and investor expectations across equities and bond markets.