J.D. Foster
The Wall Street Journal reported last week that former President Donald Trump met with Art Laffer and Steve Moore, two of his former advisors, to present possible successors to Federal Reserve Board Chair Jay Powell.
Laffer and Moore suggested either former Trump Council of Economic Advisers Chair Kevin Hasset, former Fed board of governors member Kevin Warsh, or even Laffer himself. These are respectable options. Trump’s problem is he would likely have to wait until after the 2026 mid-terms before his preferred choice was in place and effective.
Powell was sworn in for a second term as chairman of the Federal Reserve Board on May 23, 2022. Assuming Powell serves the full four years, Trump would then have to wait until mid-2026 before making his pick for Powell’s successor public. Given the Senate’s nature, Trump’s pick likely wouldn’t make it through the confirmation process until the August recess in 2026, with a first rate-setting FOMC meeting not for many weeks.
Further, monetary policy still operates with long and variable lags. This means that even a new Fed Chair, able to rally the rest of the board or the FOMC to a change in policy, would not materially influence inflation rates, credit conditions, or job growth, the key macroeconomic outcomes, until late in Trump’s term.
Suppose in the year prior to a new president’s term that the Fed pursued a highly inflationary policy out of a gross misunderstanding of economic forces. Or suppose the opposite, that while attempting to follow its “dual mandate” the Fed misreads the economy and triggers a recession. In either case, the voters would hold the new president largely responsible, yet he or she would have little or no opportunity to prevent or remedy the problem. By the time their pick for Fed chair is in place, the crisis would likely be passed.
However impatient he may get, Trump could not simply fire Powell. Though the law isn’t entirely clear, the prevailing view is that Powell cannot be fired just out of a policy difference. He could only be fired “for cause,” historically defined as “inefficiency, neglect of duty, or malfeasance in office.” Powell has made his mistakes, but he is guilty of none of these sins, so Trump would be stuck with Powell for quite some time.
This asynchronous arrangement between a new presidency and a new Fed chair is not unique to Trump. The Fed chair is one of a handful of the most important economic policymakers in the country. The chair’s leadership can profoundly affect job growth and inflation. Yet every incoming president must wait many months, in this case well over a year, before having their economic team complete with their own choice at the Fed helm.
Long absurd, this arrangement also applies to the current vice chair, Philip Jefferson, who was sworn in for his four-year term at the same time as Powell. The current vice chair for supervision, Michael Barr, won’t complete his four-year term until mid-July 2026. It’s safe to say neither Jefferson nor Barr would be re-appointed by Trump, but Trump would be stuck with them for a long time.
As matters stand, a President Trump would have essentially no influence over the Fed through any of its leadership positions for the first two years of his presidency. Congress can and should fix this, not just for Trump, but for all future presidents. The terms for the top three positions at the Federal Reserve should all expire the day after a new president takes the oath of office, with all three continuing to serve at the president’s pleasure until a replacement is Senate confirmed.
J.D. Foster is the former chief economist at the Office of Management and Budget and former chief economist and senior vice president at the U.S. Chamber of Commerce. He now resides in relative freedom in the hills of Idaho.
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