Poker-faced Powell may have an ace up his sleeve to thwart Trump

WASHINGTON, Jan 16 (Reuters) – At 72 years old, the chairman of the United States Federal Reserve, Jerome powell he has grandchildren to play with, a game of golf to get back to, and a tune or two to master on the guitar.

He also faces a choice: Dedicate the next few years to his family and his passions or fight from within the Federal Reserve to shape, if not hinder, any efforts by the Trump administration to undermine the independence of the world’s most important central bank or radically remake its structure.

Although his term as head of the Federal Reserve ends in May and President Donald Trump is expected to name a replacement soon, powellTrump’s separate seat on the Federal Reserve Board of Governors does not expire for two years, giving him a potentially critical vote on monetary policy and any broader changes at the central bank until near the end of Trump’s presidency.

Like Trump, a negotiator – in powellAs is the case with his years at the private equity firm Carlyle Group: the head of the Federal Reserve has no reason to reveal his opinion.

“I am focused on the time I have left as president. I have nothing new to tell you about it.” powell he said when asked about his plans during a news conference after a Dec. 9-10 political meeting, a refrain he repeats every time he is asked.

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But the events of recent days, with a criminal indictment threatened by the United States Department of Justice in what powell Criticized as a “pretext” to pressure him on monetary policy, they have made clear what is at stake for the Federal Reserve, as indicated Sunday night in an extraordinary video (now approaching 1.2 million views on YouTube) that broke years of reluctance to address Trump’s relentless pressure campaign head-on.

Trump has repeatedly demanded big interest cuts, criticizing powell and to the Federal Reserve for being too slow to reduce borrowing costs.

As an institutionalist and member of what is now considered the old guard of the Republican Party, a bipartisan figure who has been appointed, promoted and supported by members of both major parties, including Trump, powell He may view the decision to stay as now almost inevitable if he feels the Fed’s independence is at risk and believes his continued presence could help defend it.

“Everything intensifies with the subpoena,” said former Cleveland Fed President Loretta Mester, a career U.S. central bank employee and now an associate professor of finance at the Wharton School of the University of Pennsylvania.

“This raises the issues that the last eight months have brought to the fore, namely that even if the Federal Reserve is able to continue to withstand pressure – and I am sure that its policy decisions are based on the evolution of the economy and the financial market and not on something the president says – the fact that it even raises a question is a cost,” she said, as investors and the public adjust to a US central bank that can begin to operate under different rules, restrictions and pressures.

POWELL COULD CHANGE A PRECEDENT OF ALMOST EIGHT DECADES

a decision of powell Remaining as Fed governor would upend decades of precedent in which outgoing heads of U.S. central banks paved the way, in the spirit of a democratic transition, for their successors and relinquished their separate seats on the Federal Reserve board. The last to stay was Marriner Eccles, whose name adorns one of the two Federal Reserve buildings under renovation that are the center of the Justice Department investigation and who remained on the board for more than three years after his term expired in January 1948.

The Federal Reserve board’s seven staggered 14-year terms, one of which expires every two years, are intended to limit the appointment of a chairman to two in a given term, although in practice more seats often become available through resignations. The appointment of a Federal Reserve chief, confirmed through a U.S. Senate process independent of board appointments, has always been considered the most important election, and it is not uncommon for board vacancies to sometimes drag on for years.

But events of the past few days have already set the 14-year Federal Reserve veteran on a new course, with powellSunday’s video comments by far his most direct rebuttal after years of pressure from Trump and the threat of impeachment raises concerns about how far the president and his administration may go to try to gain full control of the central bank, or what they might do to policymakers who resist their future demands.

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The seven current board members are otherwise divided between Trump appointees and governors appointed by former President Joe Biden. While the blind support of Trump’s own appointees is not guaranteed (they also have legal protection against firing, although that is being tested in the Supreme Court through the president’s effort to fire Federal Reserve Governor Lisa Cook), more seats will mean more influence, with powell a possible swing vote if partisan divisions emerge.

“With a majority of governors, there are all kinds of reorganizations and reforms on the horizon,” said Mark Spindel, chief investment officer at Potomac River Capital and co-author of a history of Federal Reserve policy. “It’s not just about lower rates…The Fed is in cutting mode anyway.”

STILL TIME TO DECIDE

Remaining on the Federal Reserve board could be exhausting and risky, but there’s not much normal about Trump’s relationship with powell and the current Federal Reserve, with unusually harsh public criticism as the norm starting weeks later powell he took office as a Trump appointee in 2018. It has recently escalated to more direct threats, the decision to fire Cook and a clear willingness on the president’s part to ignore precedent.

In an interview with Reuters on Wednesday, Trump said he had no plans to fire powelland, with a Senate backlash to the investigation and Treasury Secretary Scott Bessent reportedly angry about it, “we’re in kind of a holding pattern with it, and we’re going to determine what to do.”

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The Federal Reserve Act says that Federal Reserve board members can only be removed “for cause,” a standard that has not been defined in the courts because no president before Trump had attempted it. A definition may be reached in the Cook case, but the term is generally understood to mean some form of embezzlement or abuse, not a dispute over monetary policy. The principle, widely held in all countries, is that political control of interest rates is a recipe for runaway inflation, given the short-term interests of politicians and the long-term nature of business cycles.

There are still four months to go powellThe Fed’s leadership in the United States ends and Trump’s nominee for the top job will have to pass the Senate, a process complicated by threats against the current head of the US central bank.

That’s enough time to powellas well as Federal Reserve Vice Chairman Philip Jefferson, who faces a similar election when his term ends in September 2027, to wait and see to what extent “costs” for the central bank and the US economy seem likely to rise.

There are many Fed critics who believe the central bank could use an update on a number of issues.

powell and the Federal Reserve, by their own admission, were slow to react when inflation rose to what would become generational peaks during the COVID-19 pandemic, although there is dispute among economists over whether smaller rate increases initiated earlier would have made as much difference compared to the faster and larger increases in borrowing costs approved once the response to rising price pressures began.

The question is how far any institutional change can go as Trump has the opportunity to appoint more Federal Reserve governors, to the point of even removing regional Federal Reserve bank presidents who get out of control.

Bessent, in an essay last year, said he favored broader reform at a central bank that he accused of “mission creep and institutional inflation,” adding that it “must change course.”

It remains to be seen how far he or the new head of the Federal Reserve want to go.

But they may need powellThe support of, at least for a while, to make this happen. And, for the current head of the Federal Reserve, that could mean a delay in retirement.

(Reporting by Howard Schneider; Editing by Dan Burns and Paul Simao)