President Trump’s plan for a more inclusive Federal Reserve could backfire so much that Jerome Powell could end up staying on as chairman beyond his term, while Stephen Millan, Trump’s most loyal supporter on the Fed’s rate-setting committee, leaves the agency.
Since running for president, Trump has repeatedly targeted the Fed chairman personally. First, he wants Powell to keep interest rates higher to avoid raising President Biden’s economic rating. Once in the Oval Office, he began lobbying for lower interest rates and relentlessly pursued monetary policy, including multiple legal threats.
Last week, he accomplished a key goal: finding a replacement for Powell, whose term as Fed chairman ends in May, is dovish but is not seen as being so close to the White House that he would alarm markets.
Former Fed governor Kevin Warsh’s hawkish tone on the central bank’s balance sheet under Ben Bernanke may have exacerbated losses in precious metals prices, but it did not unsettle markets. But Warsh may not be as quick to shape the tone of the conversation about the Federal Open Market Committee’s (FOMC) benchmark rate setting as Trump hopes.
That’s because Warsh had to go through a Senate Banking Committee hearing to gain approval, and Democrats on the committee refused to proceed until criminal charges brought by the Trump administration against Fed members were dropped.
“We ask that you delay any nomination process for Mr. Warsh until the pretextual criminal investigation involving Chairman Powell and Governor Cook is concluded,” Banking Committee Democrats said in a statement. statement.
Currently, two members of the Federal Open Market Committee are facing court action: Powell himself and Fed Governor Lisa Cook. The U.S. Supreme Court has so far blocked President Trump’s attempts to fire Cook. An attempt was made to remove her from office in September. She allegedly fraudulently obtained favorable mortgage terms before joining the Fed. Cook denies the accusations.
Earlier this month, Powell also confirmed that he was under criminal investigation by the Justice Department for his testimony to a Senate committee about renovations at the Federal Reserve Building. The cost of renovations has been a point of contention between Trump and Powell, with the two arguing in July (in front of world media) about whether it goes over budget.
The Democrats added: “Warsh’s nomination comes after months of ongoing efforts by President Trump and his administration to influence the Fed through intimidation tactics, including opening criminal investigations into Fed Governor Cook and Fed Chairman Jerome Powell. The president’s continued efforts to rein in the Fed – which must be able to exercise independent judgment – undermine public confidence in any current chair nomination.”
UBS chief economist Paul Donovan observed that the Democratic hurdle could mean Powell will remain as Fed chair given that Trump has shown no sign of abandoning the investigation.
In a letter to clients this morning, Donovan noted that the Democrats’ action “was expected, but increases the likelihood that Chairman Powell will continue to serve as FOMC chair (rather than as Board chair) beyond May.”
Milan resigned
Trump’s main ally at the Fed, meanwhile, is Stephen Miran, who has so far co-served at the Fed and chairs the Council of Economic Advisers to the Executive Branch (CEA).
Millan was first nominated to serve as a Fed governor, temporarily replacing Adriana Kugler, whose term ends at the end of January. Milan later said he would resign from CEA if his Fed duties continued beyond that date — which he subsequently did.
While it’s unclear whether Milan will now be formally nominated to continue his role at the Fed, it marks a decline in (at least publicly) the closeness between the White House and the Fed, which is legally required to remain politically independent.
White House Spokesperson Khushi Desai tell the media Millan’s resignation fulfills a promise he made last year, adding: “Before Stephen began taking leave last September, his exceptional insights and strong advocacy on behalf of the president made him a huge asset to the White House, and he also established himself as a key member of the Trump administration’s economic team.”
This story was originally published on wealth network