Biden-era appointments could hamper Trump's effort to reshape the Fed

US President Donald Trump's upcoming nomination of a new member to the Federal Reserve's (Fed) Board of Governors will focus attention on the plans of three other appointees of his predecessor, Joe Biden, as well as Fed Chairman Jerome Powell himself, who combined could provide a powerful counterweight to any effort to overhaul monetary policy or the operations of the US central bank.

The surprise resignation of Fed Governor Adriana Kugler last week gives Trump a seat to fill months earlier than expected with someone who could serve as Fed chief-in-waiting until Powell's term as head of the central bank ends in May or, if the President elevates Governor Christopher Waller to the post, add another supportive voice to the board.

Donald Trump said he plans to announce a nominee “shortly,” but the move won’t end his frustrations with a central bank where policymakers rotate slowly by design, and with a decentralized system set up to limit the influence of elected officials.

“Whoever takes office has to reach an agreement among all the decision-makers,” said former Fed Vice Chairman Donald Kohn, now a fellow at the Brookings Institution. “The chairman is very powerful. But the decisions are made by the Board and the Federal Open Market Committee. The chairman gets others to sign on by winning arguments, by being right. No one will have the ability to change things immediately. They will have to convince people.”

After cutting interest rates three times in the last four months of 2024, including twice after Trump's election victory, the Fed has held them steady to observe how the combination of increased import duties, immigration crackdowns, and tax cuts affects its mandate to keep inflation under control and employment high. Although Fed officials believe the outcome remains uncertain, Trump has interpreted the timing of the pause as evidence that Powell and his colleagues are acting politically to sabotage him.

Trump has promised to nominate someone who would support lowering the Fed's benchmark interest rate to 1.0 percent from the current range of 4.25 to 4.50 percent.

Yet, despite all his prestige, the Fed's top official only has one of the Washington-based board's seven votes when it comes to key internal matters such as senior hiring, budgeting, and overall staffing for an expanding system.

On interest rates and key issues such as policy communication, a central tool of the Fed, the Fed chief only has one of the 12 votes on the rate-setting Federal Open Market Committee (FOMC), which sets communication guidelines for monetary policymakers and annually approves a set of operating principles.

Powell's successor could take office with grand ambitions—one person under consideration, former Fed Governor Kevin Warsh, has spoken of "regime change" and "brain-cracking"—but would need the support of Biden appointees, the heads of the Fed's 12 regional banks hired by independent directors, and possibly Powell himself if he chooses to remain on the board as governor.

Although Powell's term as Fed chairman ends in about nine months, he could remain as governor until January 2028, toward the end of Trump's term.

Boundaries

Powell, who frequently speaks about the importance of protecting the Fed's independence, has yet to say what he plans to do. Traditionally, Fed chiefs have not remained governors.

For the remainder of Trump's presidency, those who would need to be courted by Powell's successor include Fed Vice Chair Philip Jefferson, Governor Lisa Cook, and Governor Michael Barr, all Biden appointees. Assuming none of them resign, each will have a term that extends to 2032 or later.

If Powell remains, his votes, along with yours, would form a majority on the board, with the ability to influence management and regulatory decisions.

Interest rates, which are set by the governors along with five regional bank presidents as part of the FOMC, could exert a strong influence regardless of whether Powell leaves in May.

With their own seats secured after Senate confirmation, there's also no guarantee that Waller or Vice Chair for Oversight, Michelle Bowman, both Trump appointees, would agree to sweeping reforms. Waller, in particular, has already rejected some ideas floated by people like Warsh, such as drastically reducing the Fed's balance sheet.

“Really sweeping changes would be very difficult. There are limits to what a new chairman could accomplish,” said Bill English, former director of the Fed’s monetary affairs division and current professor at the Yale School of Management.

Unlike other independent agency heads, the new Fed chief would also face the verdict of a particularly powerful group: a global bond market with enormous latitude to set borrowing costs for the U.S. government, businesses, and consumers.