Investing.com -- Federal Reserve chair Jerome Powell has made it clear that he is willing to remain in place even if President-elect Donald Trump demands his resignation, but could Trump appoint a “shadow” Fed chair to sideline Powell?
Powell's term as chair formally ends in May 2026, but rather than wait until then, some advisors have suggested that President Trump could appoint a successor well before Powell's term ends, who could potentially offer monetary policy views aligned with that of the White House, neutering the Fed’s forward guidance and its impact on markets.
"Presumably, the idea is to make parallel policy announcements, in some unspecified venue, maybe (or maybe not) on FOMC days," analysts at Piper Sandler said.
"The logic runs that the bond market would take cues not from the sitting Fed, but from the crew in waiting. Presto, the White House can thereby wrestle away the transmission of monetary policy," it added.
However, the idea of appointing Powell's replacement well before his term ends to create a 'shadow Fed' is easier said than done. This 'shadow Fed' would eventually be installed after the current Fed chief leaves."
"With no open seat on the Board of Governors until January 2026, any attempt to install a 'shadow' chair would likely face significant hurdles, Piper Sandler said.
As well as the questionable logistics of such a move, Piper Sandler points out that any move to ouster Powell would likely be met with strong resistance.
Powell recently pushed back against the idea of resigning, pointing out that there was no legal avenue that Trump could pursue to seek his ouster.
“Not permitted under the law,” Powell said when asked whether a president could remove a Fed chair from their position before the end of their term.
Facing a battle to remove Fed Powell, Trump may ultimately opt for a "less confrontational approach," keeping the current Fed chair in place until the end of his term, Piper Sandler said.
"Trump seems likely, we guess, to play nice on this one," it added, noting that leaving the Fed alone might be the best option for someone who's both a "king of debt" and a "low-interest-rate person."
Keeping Powell in place isn't a far-fetched idea as Trump has previously alluded to letting the Fed chief serve out his term.
“I would let him serve it out, especially if I thought he was doing the right thing,” Trump told Bloomberg News in a June interview.