Trump's war against the Powell Fed has taken another political turn

Federal Reserve Chair Jerome Powell now heads into his next challenge: a potential threat that President Donald Trump could undermine his authority by soon naming his pick to head the central bank

In the wake of the intense criticism, Wall Street has been buzzing over the potential for a "shadow chair," or someone Trump could install as a central bank gadfly until Powell's term expires

A report indicated that Trump is considering naming the successor sooner than expected in an attempt to influence interest rate policy

Kent Nishimura | Getty ImagesFederal Reserve Chair Jerome Powell mostly breezed through two hearings on Capitol Hill this week but now heads into a much bigger challenge: a potential threat that President Donald Trump could undermine his authority by soon naming his pick to head the central bank next year

As Powell testified Wednesday before the Senate Banking Committee, holding generally cordial exchanges with lawmakers, Trump was at the NATO summit in The Hague, Netherlands, lobbing his attacks on a man he had nominated for the Fed job nearly eight years ago. "I think he's terrible," Trump said when asked during a news conference his intentions for the next Fed leader

Trump then called Powell a "very average mentally person," adding he has "a low IQ for what he does" and is "a very political guy. ""I think he is a very stupid person, actually," Trump said

While Trump's name-calling of Powell isn't particularly new, the words now could signal action

Potential candidatesIn the wake of the intense criticism, Wall Street has been buzzing over the potential for a "shadow chair," or someone Trump could install as a central bank gadfly until Powell's term expires in May 2026

The talk has impacted : Traders on Thursday accelerated bets on rate cuts this year, with three reductions now at 60% odds, compared with a strong lihood of two just a few days ago, according to CME Group data

Treasury yields tumbled at the shorter end of the curve, which is where the Fed has its influence, falling much more than those at the long end

The dollar also was down sharply against its global counterparts

Trump confirmed that he has a list of potential Powell successors down to "three or four people," without naming the finalists

The cadre of potential candidates has become familiar: Treasury Secretary Scott Bessent, National Economic Council Director Kevin Hassett, former Fed Governor Kevin Warsh, and as a dark horse in-house pick Christopher Waller, who is a Trump appointee serving as governor and as of late has been an advocate for lower interest rates

Bessent himself has said he's not interested in the job, though that could change if Trump would ask him to take it

A report in The Wall Street Journal on Wednesday evening suggested that former World Bank President David Malpass also is in the running

The Journal report indicated that Trump is considering naming the successor sooner than expected in an attempt to influence interest rate policy

White House officials did not respond to a request for beyond Trump's remarks at the news conference

An active FedThere are several issues making Trump's desire to name a chair now blematic

Powell's term as governor itself doesn't expire until 2028, though the chair term runs out next year. "This plan bably isn't constitutional and would politicize the Fed for a few months before stability is restored next May," Greg Valliere, chief strategist at AGF Perspectives, observed Thursday. "But the damage to the Fed's independence would be considerable if Trump becomes a monetary back-seat driver, second-guessing Fed policies this fall. "The Trump-Powell tumult comes during a busy time for the central bank

Over the past several days, the Fed has taken two significant steps aimed at banking: removing "reputational risk" as a criteria for bank exams, a seeming nod to Trump's complaint over politically motivated de-banking at large institutions, and the relaxing of reserve capital rules for systemically important banks

The latter measure was pushed by Vice Chair for Supervision Michelle Bowman, also a Trump appointee but someone who is thought to be at best an outside hopeful for shadow chair finalist

Nevertheless, Trump's biggest gripe, namely the Powell-led Federal Open Market Committee's refusal to lower interest rates, remains a sticking point

Chicago Fed President Austan Goolsbee told CNBC in a Thursday interview that the political waves are not a factor in decision-making, nor would be the naming of a shadow chair. "That would have no effect on the FOMC itself," Goolsbee said. "Just look at the minutes and transcripts

You can see, word for word, what the rationale are in making the decisions, and they're not elections and they're not partisan . "Don’t miss these insights from CNBC Berkshire s drop double digits as 'Buffett premium' disappears, and some expect more sellingGoldman says 'TINA trade' is a and well, fueled by 401(k) buyingBest stocks: Defense, including these 2 names, may be in secular bull market as global conflicts mountGoldman Sachs says buy these five stocks that are set to rallywatch now9:5709:57Chicago Fed President Austan Goolsbee: It's important to get clarity on impact of tariffsSquawk Box.