As President Trump prepares to nominate a new Federal Reserve chair in the coming months, he hasn’t been shy about his goal for the powerful economic posting: lower interest rates.
“I want somebody that when the market is doing great, interest rates can go down because our country becomes stronger,” the president said during a speech in Detroit on Tuesday. He’s long pushed for lower rates, which could boost economic growth and make it cheaper to borrow.
He has also made no secret of his frustration with outgoing Federal Reserve Chair Jerome Powell, who has supported cutting interest rates at a fairly slow clip, wary of causing inflation to resurge. For months, Mr. Trump has called Powell — whom the president appointed Fed chief during his first term — a “moron,” a “stubborn mule,” a “real stiff” and “Mr. Too Late.”
And then, in a surprising Sunday night video message, Powell announced the Fed had received grand jury subpoenas from the Justice Department “threatening a criminal indictment” over Powell’s testimony to Congress about a pricey renovation to the Fed’s headquarters. He accused the administration of using the renovation cost overruns and his testimony as “pretexts.” He also argued the independence of the Fed, which operates separately from the executive branch and isn’t funded by tax dollars, is at risk.
“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President,” Powell said, asserting that this threat “is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions — or whether instead monetary policy will be directed by political pressure or intimidation.”
The White House says Mr. Trump didn’t direct the Justice Department to issue subpoenas, and U.S. Attorney for D.C. Jeanine Pirro has insisted the subpoenas were “not a threat,” but were instead issued because the Fed wasn’t answering questions. In an interview with CBS News, Mr. Trump brushed off allegations of political retribution, saying: “I can’t help what it looks like.”
But the subpoenas have outraged some Republican lawmakers, jeopardizing Mr. Trump’s plan to immediately nominate a new Fed chair when Powell’s term ends in May.
That congressional pushback is just the latest roadblock in Mr. Trump’s quest to get the Fed to cut rates. There’s also the looming possibility that Powell could remain on the Federal Reserve’s board even after his term as chair ends. And ultimately, the decisions on interest rates are made by a committee that’s largely out of the president’s reach.
“As we learned this week, [Mr. Trump] may not have as much freedom to pick a Fed chair as he thought,” David Wessel, director of the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy, told CBS News.
New Fed chair will need to get through a skeptical Senate
Mr. Trump has identified two leading candidates to replace Powell as Fed chair: White House economic adviser Kevin Hassett and former Fed board member Kevin Warsh.
“The two Kevins are very good,” the president told Reuters.
But the next chair will need to be confirmed by the Senate — and there are signs the Justice Department’s investigation into Powell could complicate things, as several GOP lawmakers have raised concerns that the Fed’s delicate independence may be at risk.
Republican Sen. Thom Tillis of North Carolina reacted furiously to the Powell probe, writing on X that Trump advisers were “actively pushing to end the independence of the Federal Reserve.”
“I will oppose the confirmation of any nominee for the Fed—including the upcoming Fed Chair vacancy—until this legal matter is fully resolved,” Tillis wrote just hours after Powell publicly announced the subpoenas.
Tillis sits on the Senate Banking Committee, and if he were to vote with the panel’s Democrats to oppose Mr. Trump’s nominee, the committee would deadlock 12-12.
Any nominee who makes it to the full Senate could face skepticism from several other Senate Republicans. In the current Senate, Mr. Trump can afford to lose only three GOP votes if all Democrats vote against his Federal Reserve pick.
Among the GOP skeptics: Sen. Susan Collins of Maine told reporters that Powell’s video revealing the subpoenas raised “a lot of disturbing questions,” and Sen. Lisa Murkowski of Alaska said she sees the investigation as a bid to “intimidate, threaten and coerce.” Sen. John Kennedy of Louisiana said he thinks it’s unlikely that Powell did anything wrong and warned the conflict between Mr. Trump and the Fed chief could be economically damaging.
“If you wanted to design a system to cause interest rates to go up and not down, you would have the Federal Reserve of the United States and the executive branch of the United States get into a pissing contest. We don’t need it,” Kennedy said.
Senate Majority Leader John Thune, who has the ability to bypass a deadlocked Banking Committee and enable a nominee to reach the floor for a vote, acknowledged to reporters Monday that the investigation could make it challenging to confirm new nominees to the Fed.
“If the Justice Department is pursuing something, I hope they have a smoking gun or something, because I don’t think you trifle with the Federal Reserve,” the South Dakota Republican said Tuesday.
What if Powell doesn’t step down?
Another possible wrinkle: Powell’s term as Fed chair expires in May, but his term as a rank-and-file member of the Fed’s Board of Governors doesn’t end for another two years.
All seven members of the board serve 14-year terms, but the board’s chair serves a separate four-year term. In recent history, most Fed chairs have resigned from the board altogether when their time as boss runs out, but there’s nothing requiring them to do so.
Powell has served on the Fed since 2012. He was nominated to a 14-year term by former President Barack Obama two years later, was elevated to chair during Mr. Trump’s first term and was nominated to a second term as chair by former President Joe Biden. The 72-year-old Powell hasn’t said whether he plans to leave the Fed when his term as chair expires.
Murkowski told reporters Monday that if the goal of the scrutiny on Powell is to get him to speed up his departure from the Fed, it could have the opposite effect.
“When you get pressured, when you get threatened in this way, most of us would say, ‘I’m not going anywhere,'” she said.
Wessel told CBS News he doesn’t think Powell is likely to stay on the Fed board, but said: “I do think there’s a possibility, and I think the possibility went up over the last week.”
If Powell decides to stick around until his term ends in January 2028, it could cause a few problems for Mr. Trump’s push for a Fed that aligns with his views on interest rates.
Because the new Fed chair must be selected from among the existing seven Fed governors, there needs to be a vacancy on the board in order for Mr. Trump to appoint a new person as chair. If Powell doesn’t create a vacancy by resigning, the president would likely need to nominate his chair to the board seat currently occupied by Stephen Miran.
A Trump economic adviser, Miran was confirmed to a short-term posting on the Fed board last year after a Biden-nominated governor resigned before her term expired. His term as a Fed governor ends on Jan. 31, but it’s not clear if Mr. Trump had planned to nominate him to a fresh 14-year term after that. (If a successor to Miran isn’t nominated when his current term ends, he can remain in place until the Senate confirms a replacement, under federal law.)
If Mr. Trump replaces Miran with his handpicked Fed chair and Powell remains on the board, only three of the Fed’s seven governors would be Trump nominees: the chair, plus two officials who were initially appointed during Mr. Trump’s first term, Michelle Bowman and Christopher Waller.
That could increase to four Trump nominees out of seven after Powell’s term ends in 2028. But the three remaining governors — all Biden nominees — have terms that end in 2032 or later, keeping them on the Fed until well after Mr. Trump leaves office unless they choose to resign.
Chair doesn’t set interest rates on his own
The composition of the Fed’s rank-and-file board members matters for Mr. Trump because, when it comes to interest rate-setting decisions, the chair is technically one vote out of a dozen.
Interest rate policy is overseen by a 12-member panel called the Federal Open Market Committee, which is made up of all seven Fed governors, the president of the Federal Reserve Bank of New York and a rotating cast of four of the other 11 regional Fed bank chiefs.
Mr. Trump has very little control over the regional Fed presidents who sit on the committee. They’re hired for five-year terms by each regional bank’s board of directors, and while the Fed’s Board of Governors needs to approve their appointments, the board voted unanimously to extend most sitting regional bank presidents’ terms until 2031 last month. Wessel said the board can fire presidents.
So, depending on whether Powell stays on the Fed, either three or four of the Federal Open Market Committee’s 12 members are set to be Trump nominees.
When the committee meets eight times a year to set interest rate targets, the Fed chair traditionally plays a key role in helping the panel form consensus, but the members vote on their own. It’s not uncommon for members to dissent from the committee’s decisions, and there’s no guarantee that their views will align with Mr. Trump’s.
“If they don’t respect the chairman, and the chairman bows to pressure from Trump and wants to do a deep interest rate cut that the other members of the committee think is nuts, they will vote against it,” Wessel said.
Dissents have been commonplace in recent months. When the committee voted to leave rates flat in July, Bowman and Waller pushed for a rate cut — but their stance hinged on a belief that the economy is softening, not that it’s extremely strong as Mr. Trump argues. And in December, when the committee voted to cut rates by 0.25 points, Miran dissented and called for a larger 0.5-point cut, while two regional presidents favored no cut at all.
And if Powell stays on as a Fed governor, Wessell said he could have “considerable influence,” too.
Can Trump fire Fed officials?
Mr. Trump is fighting in court for an extra board seat — and for more power to shape the board.
Over the summer, the president attempted to fire board member Lisa Cook, accusing the Biden nominee of making false statements on mortgage documents.
The dramatic move posed the first-ever test of a president’s power to fire Fed members. Under federal law, the president can only remove board members “for cause,” a term that isn’t defined.
Cook has sued over the firing, arguing that an “unsubstantiated allegation about private mortgage applications” doesn’t meet the law’s requirement for cause. But the Trump administration has argued the president acted within his power.
The Supreme Court is hearing arguments in Cook’s case on Jan. 21. The courts have let Cook remain in her job — and vote on interest rate policy — while the lawsuit plays out, but the federal government is asking the Supreme Court to allow her to be removed for the time being.
It’s not clear how the high court might rule. In a separate case that’s also set to be decided this term, the Supreme Court appears to be leaning toward giving the president more power to fire members of independent government agencies without cause. But the court has hinted in the past that it views the Federal Reserve as special.
In an order last year that let Mr. Trump fire members of the National Labor Relations Board, the Supreme Court explicitly said that the Fed wouldn’t be impacted, calling it a “uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States.”
The case could have broad implications for whether the Fed remains independent.
Mr. Trump has long argued that he should have some input in the Fed’s interest rate-setting decisions, saying last month that “my voice should be heard” because of his business background.
But many experts say it’s essential that the Fed operate independently of political influence so that it can weigh the economy’s long-term best interest, rather than accommodating politicians’ short-term desire for low rates and a hot economy.
“I think the expectations are [that] the Supreme Court doesn’t want to turn the Fed inside out and they’re going to let [Cook] stay,” Wessel said. “If they didn’t let her stay, that would basically be the end of the independence of the Federal Reserve.”
