The Big Picture

Briefing.com Summary:

*Whoever succeeds Jerome Powell as Fed Chair may face added dissent if they are seen as a politically motivated pick.

*The president is unlikely to fire Fed Chair Powell before his term ends without clear evidence of wrongdoing.

*The market is sniffing more accommodative policy under a new Fed Chair, but the Chair alone cannot change rates.

There was a stir in the market following press reports that President Trump is close to firing Fed Chair Powell. That speculation ignited the punditry, who were quick to share their views on why that should or should not happen.

The argument against firing Fed Chair Powell before his term ends in May 2026 is that it would destroy the stabilizing principle of the Federal Reserve operating independently of political influence. The argument for firing Fed Chair Powell revolves around claims of policy mismanagement (i.e., keeping rates too high) and alleged malfeasance in overseeing the renovation of the Federal Reserve headquarters.

The president, in response to the aforementioned press reports, said it is "highly unlikely" that he will fire Fed Chair Powell before his term ends, unless it is discovered that the Fed Chair committed fraud.

There are strong opinions on the topic and many questions as to whether the president even has the legal ground to fire Fed Chair Powell and whether any selected successor would be able to usher in the substantive policy rate reduction the president wants to see in short order.

There is an important point of order surrounding all this hubbub. The Chair of the Federal Reserve does not make independent interest rate decisions. When it comes to monetary policy, it is a decision by committee—the Federal Open Market Committee (FOMC). Today, we will examine its structure.

Board of Governors

The FOMC meets eight times a year and consists of 12 members—the seven members of the Federal Reserve Board of Governors, the New York Fed president, who is a permanent voting member, and four of the remaining 11 regional Federal Reserve bank presidents, who serve one-year rotating terms.

The seven governors are nominated by the president and confirmed by the Senate. A full term is 14 years. A governor who serves a full term cannot be reappointed, but a governor who serves a portion of an unexpired term may be reappointed.

The Chair of the Board of Governors (Jerome Powell) and Vice Chair of the Board (Philip Jefferson), as well as the Vice Chair for Supervision (Michelle Bowman), are nominated by the president from among the board members and confirmed by the Senate. These positions have a term of four years.

Jerome Powell was nominated by President Trump in his first term and took ownership of the position on February 5, 2018. He was again nominated by President Biden for a second four-year term and sworn in on May 23, 2022. The other board members are as follows:

• Philip Jefferson: Nominated by President Biden, Mr. Jefferson took office on May 23, 2022, filling an unexpired term ending January 31, 2036.
• Michelle Bowman: Nominated by President Trump in April 2018 to fill an unexpired term ending January 31, 2020. She was reappointed to the Board on January 23, 2020, for a term ending January 31, 2034.
• Michael Barr: Nominated by President Biden on April 15, 2022, for an unexpired term ending January 31, 2032.
• Lisa Cook: Nominated by President Biden on April 14, 2022. She took office on May 23, 2022, filling an unexpired term ending January 31, 2024. She was reappointed to the Board on September 8, 2023, for a term ending January 31, 2038.
• Adriana Kugler: Nominated by President Biden on May 12, 2023, to fill an unexpired term ending January 31, 2026.
• Christopher Waller: Nominated by President Trump on January 16, 2020. He took office on December 18, 2020, to fill an unexpired term ending January 31, 2030.

In brief, five of the seven current Board Governors were nominated by President Biden. Mr. Powell and Ms. Kugler have terms ending in 2026. In the case of Mr. Powell, his term as Chair of the Board of Governors ends in May 2026, but his term as a Fed Governor ends January 31, 2028. He has an option, therefore, to remain on the Board of Governors after his term as Chairman of the Board of Governors ends.

Fed Presidents

There are 12 Federal Reserve Bank presidents. They all participate at the FOMC meetings, but only five of them have a vote in a given year. 

As noted above, the New York Fed president has a permanent vote. The four bank presidents on the 2025 FOMC are:

• Susan Collins - Boston
• Austan Goolsbee - Chicago
• Alberto Musalem - St. Louis
• Jeffrey Schmid - Kansas City

When the rotation is made in 2026, the following four presidents will be voting members:

• Beth Hammack - Cleveland
• Anna Paulson - Philadelphia
• Lorie Logan - Dallas
• Neel Kashkari - Minneapolis

Setting Policy

The main job of the FOMC is to set monetary policy in a manner that is conducive for meeting the Federal Reserve's dual mandate of maximum employment and price stability.

That could mean endorsing a restrictive monetary policy (keeping the target range for the fed funds rate above the Fed's longer-run rate) to slow growth in order to control inflation, embracing an accommodative monetary policy (leaving the target range for the fed funds rate below the Fed's longer-run rate) to stimulate growth, or sticking with a neutral policy position by keeping the target range for the fed funds rate in line with the longer-run average so that it is not overly restrictive or overly accommodative for growth.

The current target range for the fed funds rate is 4.25-4.50%. The Fed's longer-run rate is 3.00%, so it is considered to be operating with a restrictive policy stance (much to the president's chagrin). The fear, for some, is that the Fed will hold its policy rate too high for too long and invite either a meaningful economic slowdown or a recession as the higher cost of credit slows consumer and business spending activity.

Fed Chair Powell recently said that the Fed, which last cut rates in December 2024, would have likely lowered rates again by now if not for the uncertainty that was stoked by the president's tariff announcements in early April. Many Fed officials are concerned that the higher tariff rates could lead to higher inflation, and not just a one-time price adjustment, so they want to see more data before making any decision to cut rates. Fed Chair Powell is in that camp.

Briefing.com Analyst Insight

With the power to nominate Fed Governors and the Chair of the Board of Governors, President Trump has not been shy about his desire to get someone in the Chair's seat who will be an advocate for a lower interest rate regime. Press reports suggest National Economic Council Director Kevin Hassett, Treasury Secretary Scott Bessent, former Fed Governor Kevin Warsh, and current Fed Governor Christopher Waller are leading contenders to replace Jerome Powell.

There is a prevailing assumption that the next head of the FOMC will be able to lower rates easily in accordance with the president's wishes. That isn't an indisputably safe assumption for the simple reason that decisions require a simple majority. Seven of the 12 FOMC members have to vote in favor of a rate move, or it cannot happen. The Chair of the FOMC does not have veto power.

The Federal Reserve isn't a body that has typically had a lot of dissents at its FOMC meetings. There might be one or two occasionally, but the potential for more dissents will be greater under a new Fed Chair if the other members feel a rate decision is simply a political order.

There is a lot of narrative energy surrounding Fed Chair Powell's position and the current policy stance of the FOMC. The narrative that is supercharged is that Jerome Powell will soon be gone, forced out either by the calendar or an unprecedented firing, and that a puppet official will be nominated to take his place.

Puppet is perhaps too strong a word, yet the market is sniffing a more accommodative policy, which has been a factor in its remarkable resilience to selling pressure. To that end, there is an understanding that the president won't nominate anyone who isn't on board with cutting rates right away and by quite a lot. That may be easier said than done, though, given the operating framework of the FOMC.

--Patrick J. O'Hare, Briefing.com

(Editor's Note: The next installment of The Big Picture will be published the week of July 28.)