After years of criticizing the Federal Reserve’s leadership and trying to browbeat policymakers to slash interest rates, President Trump is running out of time to install his pick to lead the central bank when Jerome H. Powell’s term as chair officially ends on May 15.
On Tuesday, Kevin M. Warsh will make his case to the Senate Banking Committee, which oversees the Fed and wields significant power over his ability to clinch a confirmation. That leaves the administration with only 24 days to get Mr. Warsh through an initial committee vote before the full Senate takes up his candidacy — a task that became all the more difficult this week.
Mr. Warsh’s nomination has been warmly received by Republican lawmakers. Yet standing in the way of a smooth transition is a criminal investigation by the Justice Department into Mr. Powell’s handling of renovations at the Fed’s headquarters in Washington.
The investigation threatens to leave Mr. Warsh in an extended limbo once the May deadline lapses given that a key Republican on the Banking Committee, Senator Thom Tillis of North Carolina, is refusing to advance the nomination until the legal threats against Mr. Powell end.
It also increases that odds that Mr. Powell — who has vowed to protect the Fed’s independence from the White House — stays on as a governor, a position he can hold until 2028.
Doing so would hand Mr. Trump a double loss. It would prevent the president from appointing someone to take Mr. Powell’s seat on the board of governors while complicating Mr. Warsh’s job once he eventually takes over as chair.
“They’re about to snatch defeat from the jaws of victory by pursuing this unsupported political investigation,” said Scott Alvarez, who previously served as the Fed’s general counsel.
Mr. Trump on Wednesday conveyed no intention of dropping the investigation, saying it was about more than a criminal inquiry into the renovations and was also a “probe on incompetence,” in reference to Mr. Powell. The president added that he would fire Mr. Powell if he did not resign from the Fed after his term as chair ended.
In January, the Justice Department issued subpoenas to the central bank, prompting Mr. Powell to deliver a video message denouncing the move and calling out the president for seeking to use legal threats as a cudgel to compel the Fed to lower borrowing costs.
Judge James Boasberg of U.S. District Court quashed the subpoenas last month, writing in his ruling that “there is abundant evidence that the subpoenas’ dominant (if not sole) purpose is to harass and pressure Powell either to yield to the president or to resign and make way for a Fed chair who will.”
Judge Boasberg later denied the department’s request for him to reconsider his judgment.
Jeanine Pirro, the U.S. attorney for the District of Columbia and a longtime ally of Mr. Trump’s, has yet to officially appeal the ruling. But, like Mr. Trump, she has staunchly defended the investigation. In the latest provocation, prosecutors from her office paid a surprise visit to the Fed’s active constructive site on Tuesday, drawing a rebuke from the Fed’s counsel.
If the Senate does not confirm Mr. Powell’s successor by May 15, the Fed chair told reporters last month, he will continue on as “chair pro tempore.”
“That is what the law calls for,” he said in an implicit signal that he would challenge any attempt by Mr. Trump to try to claim the authority to name a temporary chair. Mr. Powell also noted that this arrangement was what the Fed had done in the past, including in 2022 when he held that position before lawmakers confirmed him for a second term.
One worry is that the president will disregard this precedent and try to elevate Stephen I. Miran, whom he tapped last year to fill an expiring term. Gary Richardson, who served as the Fed’s historian and is now a professor of economics at the University of California, Irvine, suggested that the courts would side with Mr. Powell if Mr. Trump went down this path.
The Federal Reserve Act stipulates that “upon the expiration of their terms of office, members of the board shall continue to serve until their successors are appointed and have qualified.” That has long been interpreted to apply to the chair. The board also has so-called delegation authority, meaning that in the event of a vacancy for the chair position, the board has the latitude to delegate its responsibilities to a single member to serve in a temporary capacity.
A recent spate of legal cases concluded that, when an agency position requires Senate confirmation, the president cannot appoint an acting person without the upper chamber’s buy-in.
The historical record also supports Mr. Powell’s view, Mr. Richardson said. He pointed to Arthur F. Burns, whose term as chair ended on Jan. 31, 1978. After President Jimmy Carter declined to reappoint him, Mr. Burns stayed on for an additional five weeks until the Senate confirmed his successor, G. William Miller.
Mr. Burns departed the Fed altogether about a month after Mr. Miller took over as chair, noting that he “deserves the fullest opportunity to establish his leadership at the helm of our nation’s central bank.” It was reported around that time that he would have stayed on only if he considered his successor “dangerous” to the economy.
Mr. Powell’s calculus around whether to stay on as a governor centers instead on protecting the Fed’s independence from new incursions by Mr. Trump, who is angry over the central bank’s refusal to kowtow to his demands for lower interest rates. In addition to attacking Mr. Powell, Mr. Trump has tried to fire Lisa D. Cook, a governor appointed by the Biden administration. The Supreme Court has yet to rule on whether it will allow her attempted ouster to stand, but oral arguments held in January revealed significant unease about the risks associated with an erosion of the Fed’s independence.
There were also threats involving Michael S. Barr, who previously served as the Fed’s vice chair for supervision. He ended up announcing his resignation from that role weeks before Mr. Trump’s inauguration to avoid a protracted legal fight. He opted to stay on as a governor.
Mr. Powell has not yet disclosed his plans, but he said last month that he had “no intention of leaving the board until the investigation is well and truly over, with transparency and finality.” His decision to stay or go would ultimately be based on what he thought was “best for the institution and for the people we serve,” Mr. Powell said.
“If it hadn’t been for the investigation continuing on, he probably would have left without too much fuss,” Mr. Alvarez said. “I would think Chair Powell would want real assurance from the Department of Justice that the investigation has been concluded with no finding of criminal behavior — something like, ‘We’ve looked at it, and we’ve concluded there is no problem here.’”
Getting that assurance, however, will be tricky, even if Ms. Pirro does not officially appeal. She could at any point reopen the investigation or seek retribution against other officials. Mr. Trump has also given no indication that he will cease his attacks on the Fed.
The primary concern is what Mr. Trump will be able to accomplish if he has more of his supporters on the Fed’s seven-person board. A majority would enable him to have significantly more sway over policy decisions and matters relating to staff. Legal experts are particularly worried about the fate of the 12 regional Fed presidents, who can be removed if four governors agree to do so.
By remaining at the Fed as a governor, Mr. Powell would be able to blunt Mr. Trump’s impact. But it would also bring about new challenges, especially for Mr. Warsh, who will inherit a very complicated economic backdrop as the war with Iran rages on.
Mr. Trump made clear he would pick only someone for chair who supported lower rates, but the continuing energy shock has made reductions, at least in the near term, all the more far-fetched. Once confirmed, Mr. Warsh will have to decide between trying to appease Mr. Trump and risking a situation where he is outvoted by Fed officials, many of whom have grown wary about the need to reduce borrowing costs. That would imperil his credibility both inside and outside the central bank. On the other hand, he risks broadsides from the president if he rebuffs Mr. Trump’s policy demands.
Mr. Powell’s presence is likely to deflect some of the negative attention off Mr. Warsh to some extent, but it could also make for much more muddied communications overall.
Even Mr. Burns, who was remembered as an ineffective chair, recognized the drawback of extending his tenure at the Fed. When discussing his resignation with Mr. Carter, he said that “the continued presence of a former chairman could, in my judgment, be a complicating distraction.”
William English, a Yale professor and a former director of the Fed’s division of monetary affairs, said that “there’s a risk here that people don’t quite know who’s speaking for the institution, or who’s speaking for who within the institution.”
That trade-off might be relatively easy to justify, however, depending on what was perceived to be at stake.
“If you really thought that you were standing between the institution and deep politicization, maybe you’d say, ‘It’s time to throw down the gauntlet,’” Mr. English said. “But you’d have to really feel like the alternative was really, really bad to take that on.”
Colby Smith covers the Federal Reserve and the U.S. economy for The Times.
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