With Jerome Powell’s term as chair expiring in 2026, President Trump is closing in on Fed control after months of animosity, says Helen Thomas
The great central banker jamboree takes place this weekend at Jackson Hole, Wyoming.
This annual symposium organised by the US Federal Reserve brings together the top minds
in economic academic thought – and as such provides the intellectual ballast for the
governor of the Fed to make an argument that could shift the dial on US monetary policy.
Last year a paper from Gauti Eggertson found evidence of an inflection point in the labour
market which could suggest looser monetary policy – and Fed Chair Powell went on to say
“the time has come for policy to adjust”, with the FOMC deciding to cut by 50bp in their
September meeting.
President Trump would love a repeat performance, having repeatedly lambasted Fed chair
Powell for being “too late” in cutting interest rates. His administration is deeply suspicious
that last year’s jumbo rate cut came just seven weeks ahead of election day but interest rates
have been left unchanged ever since Trump’s inauguration in January. Trump has installed
his man into a temporary position at the Fed following the early resignation of Fed governor
Adriana Kugler. Stephen Miran, chair of the Council of Economic Advisers, will take her role
once confirmed by the Senate and serve out the rest of her term until 31 January 2026.
With Powell’s term as Chair expiring in May 2026, this means Trump could tee up his
replacement by replacing Miran or, assuming Chair Powell steps down from his longer term
position as a member of the Fed’s board of governors, by replacing Powell directly. It all
adds up to the same thing: Trump will get to choose the person who will drive US monetary
policy forward.
It is not unusual for a new leader to have this power. It is often integral to the policy
programme of a new government. Consider Governor Kuroda at the Bank of Japan who
delivered aggressive monetary easing that provided one of the so-called “Three Arrows” of
Abenomics. The new Prime Minister, Shinzo Abe, needed a fresh face to deliver on his
revolutionary plans. The BOJ Governor at the time, Masaaki Shirakawa, duly announced he
would leave his post two months early. It took a bit more time for the UK’s coalition
government to replace Mervyn King as Bank of England Governor, given they were elected
in 2010 and King’s term expired in 2013. But they didn’t leave it to the last minute: Mark
Carney was confirmed as his successor six months ahead of time. Carney even managed to
wear two central banking hats for that period, given he remained as Bank of Canada
governor for those six months before he took up the BOE role.
In politics, power never lies with yesterday’s man. Mervyn King wasn’t commanding
headlines in January 2013 when Mark Carney garnered all the attention from his speech at
Davos where he claimed monetary policy was not “maxed out” and must be used to ensure
economies achieved “escape velocity”. Market expectations duly shifted, listening to the man
who would be King once the old King had departed. Even at the latest Bank of England
meeting, the vote was swung by the newest member, Alan Taylor, who was nominated by
Rachel Reeves a year ago and has rapidly become the most dovish member of the MPC. An
unprecedented second round of voting had to be undertaken as he had voted for a 50bp cut,
splitting the committee three ways. Once he changed to a smaller cut, a majority was found
and Bank Rate fell by 25bp.
Central Bankers have always had unelected power. Former deputy governor of the Bank of
England, Sir Paul Tucker, even wrote a book with that title, sketching out how the stewards
of the economy must also exercise judicious restraint given they are not chosen by the
people. Unlike an unpopular prime minister, the central bank governor cannot be booted out
at an election. President Trump has gained a popular mandate from the people; his voters
are likely to be encouraged by his efforts to deliver the interest rate cuts that he would claim are part of his agenda. The price of money is fundamental to the distribution of resources.
Inflation delivers big winners and losers, so shouldn’t the guardians of price stability, the
central bankers, be beholden to the political agenda?
In 1965, US President Lyndon Johnson was so enraged by an interest rate hike that he
demanded a visit to his Texas ranch by the Fed chair, William McChesney Martin.
Recollections may vary but the bellicose LBJ was reported to have registered his
displeasure by shoving Martin up against the wall whilst yelling in his face. Powell might be
rather pleased that the social media era leaves the trolling in the virtual, rather than physical,
realm. Yesterday’s man is not – yet – going quietly.