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Trump's next Fed chair pick already comes with a credibility problem

July 9, 2025
04:18 PM
8 min read
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If leading the Federal Reserve isn't challenging enough, the next central bank chair will face an additional burden.

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July 9, 2025

04:18 PM

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The next Fed chair faces an additional burden: credibility issues now that President Donald Trump has stepped up efforts to exert a heavy hand on monetary policy

Trump reportedly is considering naming a "shadow chair" until the current occupant, Jerome Powell, leaves office next year, in an attempt to pressure the Fed into cutting rates. "The real loser here is not Jay Powell but his successor," TS Lombard economist Dario Perkins wrote. "We don't even know who that person is, and already there are strong doubts their integrity and what of 'deal' they have made to secure the position. "The silhouette of a pedestrian is seen walking past the Marriner S

Eccles Federal Reserve building in Washington, D

CAndrew Harrer | Bloomberg | Getty ImagesIf leading the Federal Reserve isn't challenging enough, the next central bank chair faces an additional burden: credibility issues now that President Donald Trump has stepped up efforts to exert a heavy hand on monetary policy

Whoever the successful candidate is could carry the specter of being there simply to do Trump's bidding on interest rates, violating the Fed's traditionally apolitical veneer

To exert more influence in the near term, Trump reportedly is considering naming a "shadow chair" until the current occupant, Jerome Powell, leaves office next year, in an attempt to pressure the Fed into cutting rates

The spect leaves a series of thorny questions

Beyond the awkward logistics of such an arrangement, there are potentially troublesome implications both institutionally for the Fed and for financial that count on it to make data-driven decisions free of outside influence. "Naturally, this is an idea that leaves many investors feeling uneasy," Dario Perkins, senior European economist at TS Lombard, said in a note Tuesday titled "Can We Trust the Next Fed Chair. " "Suddenly all the talk is of the Fed 'losing independence' and of there being a new era of 'fiscal dominance' – not helped by the fact that Trump is explicitly linking his demand for lower rates to reducing debt-servicing costs. "Indeed, Fed officials generally make decisions in service to their twin goals, or "dual mandate," namely to mote stable inflation or full employment

Watch now4:0204:02Trump's painting the next Fed chair into a corner, says Harvard's Ken RogoffSquawk BoxWhat Trump has been demanding is different — he has been hectoring Powell and his fellow Federal Open Market Committee officials, in increasingly belligerent terms, to cut rates to lower financing costs for the government's ever-burgeoning debt load

Trump insists the Fed could taxpayers some $800 billion by aggressively lowering its overnight funds rate, which currently sits at 4

Powell and his predecessors have repeatedly held the line that the public fiscal situation does not and will not play a role in rate decisions

Veering outside the traditional Fed decision-making parameters would pose further questions for the next chair's credibility

Advantages and disadvantages"The real loser here is not Jay Powell but his successor," Perkins wrote. "We don't even know who that person is, and already there are strong doubts their integrity and what of 'deal' they have made to secure the position

But it seems pretty that Powell's replacement will come with a 'tacit understanding' to cut rates. "To be sure, central bank experts acknowledge that there is some benefit to Trump wanting to get ahead of the game in naming the next Fed chair

In fact, there usually is some lead time between when presidents announce chair nominees and when they are actually seated

For instance, Powell was nominated in November 2017 while Janet Yellen was still chair, then confirmed the ing February

Powell's term as chair ends in May 2026, so nominating a successor perhaps a few months early would give the spective nominee the chance to get through the Senate confirmation cess and bone up on the myriad responsibilities that the position carries

But Trump's idea is different

Such a "shadow chair," under the market's understanding and in conjunction with statements that Trump and his lieutenants have made on the matter, would be in place almost explicitly to undermine Powell

Should Powell not budge on pushing for rate cuts, the shadow chair could simply make public statements contrary to that position

However, finding a candidate to fill that role might not be so easy considering the reputational risks. "From the perspective of the nominee, there's nothing good being nominated far out in advance and being expected to serve as a shadow Fed chair

That can only end poorly," said Lev Menand, an associate fessor of law at Columbia Law School and author of the 2022 book, "The Fed Unbound: Central Banking in a Time of Crisis. ""It could lead to reputational harm

It could lead to pressure on you to say or do things in the run-up to actually taking office that you don't want to say or do," he added. "It could lead to your nomination being yanked

It could lead to all s of bad things

So there's nobody who's seeking the Fed chair job who's going to want to be put up early, except someone who's told you won't otherwise get it. " might not itTreasury Secretary Scott Bessent has been mentioned minently as a potential Powell replacement, along with several others. 9, 2024, interview with Barron's, less than a month before Trump's election victory, Bessent said, "You could do the earliest Fed nomination and create a shadow Fed chair. " In such a case, "no one is really going to care what Jerome Powell has to say anymore. "How financial would react to such a scenario is un

Wall Street is notorious for disliking uncertainty, especially with something as sensitive as monetary policy

The last time the Fed cut rates, in late 2024, stocks rose but so did Treasury yields while the dollar fell

Rate cuts on the scale Trump is seeking — 2 percentage points or even more — could stoke inflation fears and send Treasury yields higher again

Watch now12:5312:53Fed's Bostic: July meeting too early to assess inflationary impact of tariffsSquawk Box Europe"A good case could be made for nominating the next Fed chair a few months before the handover in May 2026," Krishna Guha, head of global policy and central bank strategy at Evercore ISI, said in a recent note. "But nominating the next Fed chair now with the expectation that this person would be an active alternative voice on monetary policy for the best part of year would confuse the market, making it harder for the Fed to shape rate expectations and potentially

In ways that would not help advance rate cuts. "Trump has a further set of logistics to navigate as he pushes his desire for lower rates

Rate cuts aren't certainThere is only one upcoming vacancy on the board of governors, with Adriana Kugler's term up at the end of January 2026

Powell's time as chair runs out in May 2026, but he can stay on as governor until 2028

In the past, most Fed chairs have stepped down after the time at the helm ; should Powell not go that route, he would then force Trump to name a current sitting governor as his successor, eliminating presumptive candidates such as Bessent, former Governor Kevin Warsh and current National Economic Council leader Kevin Hassett

Moreover, the chair is just one voter out of 12 on the Federal Open Market Committee

While there currently are disparate views from policymakers on how quickly rates should come down, there are no members who have indicated they support the kind of cuts Trump seeks

Investors will get a further peek into the Fed's thinking when minutes of the June FOMC meeting are released Wednesday. "This is all somewhat unprecedented how things would develop," Menand said. "But I think that it's safe to say that depending on how it's rolled out, it could really ultimately unsettle expectations and change how some of these dynamics unfold in the fall. " expect the Fed will start cutting again in September, but the path from there is un

Should Trump name the shadow chair in the fall, it comes with the risk of both unsettling, and of causing blems for wver he picks. "Depending on who it is, it could have no effect, really at all, on Powell's ability to govern for the remainder of his term, or it could actually be quite disruptive," Menand added. "What would actually happen if the person was named in advance

The devil would be in the details. "watch now9:4609:46The Fed really can't cut until they see solid evidence of weakening, says MetLife's Drew MatusSquawk BoxDon’t miss these insights from CNBC Morgan Stanley says buy these five stocks that are set to rallyAmazon s form 'golden cross' as Prime Day kicks offInvestors expect bitcoin to break out to new records in the second half from a consolidation phaseGoldman Sachs says these buy-rated stocks offer solid dividends.