As the Fed’s leadership transition process enters a critical phase, all eyes are on the historic decision that will be made by Fed Chairman Jerome Powell.
Powell’s term ends May 15, and the main uncertainty is not whether he will resign, but whether he will retain his position on the board.
The U.S. Department of Justice’s announcement that it was dropping the criminal investigation against Powell added a new dimension to the process. Republican Sen. Thom Tillis said he had received assurances that the investigation was indeed complete, paving the way for the confirmation of Kevin Warsh, who is expected to succeed Powell, to the Senate. This development reinforces the possibility that Warsh will take over before Powell’s term ends.
However, the most critical decision facing Powell remains clear. While the vast majority of FED chairs leave the board of governors at the end of their terms, it remains unclear whether Powell will retain his position on the board, a role he could potentially hold until 2028. Powell has previously said such a move would require the investigation to be “concluded in a full and transparent manner.” Current developments do not completely eliminate the question of whether this condition is met.
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On the other hand, Acting Attorney General Todd Blanche said that some aspects of the investigation were still under review, notably highlighting the ongoing audit of the costs of renovating the Fed’s buildings. This further complicates Powell’s decision-making process.
If Powell were to leave his post altogether, US President Donald Trump would have the option to appoint another member to the Fed’s board of governors. This is seen as a significant development that could shift the current balance of power. Conversely, Powell’s continued presence could be seen as a guarantee of the Fed’s independence in maintaining political balance on the board.
Experts emphasize that Powell’s decision is not only a personal preference, but also a matter of institutional balance. While some economists say Powell’s departure would be healthier for Warsh so he can guide the Fed’s policies after taking office, others say Powell’s stay would increase the Fed’s resilience to political pressures.
While Powell is known for wanting to return to private life after nearly 14 years at the Fed, the current political climate complicates this decision. Some also believe that his departure could indirectly legitimize the increased political pressure he has recently faced.
*This does not constitute investment advice.
