Trump's feud with Powell threatens plans to replace Federal Reserve chair

(The Hill) — President Donald Trump's effort to push out Federal Reserve Chair Jerome Powell is threatening his ability to finally replace his nemesis.

The Senate Banking Committee is scheduled to hold a confirmation hearing Tuesday for Kevin Warsh, the former Fed board member Trump nominated to replace Powell as Fed chair.

Trump has spent more than four years across two presidential terms waiting for his chance to remove Powell, whom he's derided, berated and threatened to fire countless times.

But the Trump administration's criminal probe into the Fed chief — widely seen as a way to push him out sooner — may keep Powell at the bank even longer than he would have been otherwise.

"Warsh's hearing is expected to focus on his vision for the Fed, both in terms of monetary policy — a defining feature of Trump's search for the next Fed chair — and the Fed's balance sheet, which Warsh has promised to shrink," analysts at Beacon Policy Advisers wrote in a Monday research note.

"But overshadowing tomorrow's hearing is the murky path forward for Warsh's nomination," they added.

Warsh's confirmation depends largely on when — and if — the Trump administration drops its sputtering criminal investigation into Powell's oversight of renovations at Fed facilities.

Retiring Sen. Thom Tillis (R-N.C.) has vowed to block any Trump Fed nominee, including Warsh, until the Justice Department wraps up its probe into the bank. As a member of the Senate Banking Committee, Tillis can prevent Warsh from being approved by the panel for a full confirmation vote, leaving the nomination in limbo and Powell in charge of the Fed.

"Tillis is taking a strong stand, daring Trump to wait his Senate term out … and risk a Democratic Senate," said analysts at LH Meyer/Monetary Policy Analytics in a research note. "Republicans don't have 60 votes in the Senate to bypass Tillis' block."

Dropping the criminal probe into Powell and the Fed before his term as chair ends on May 15 would likely clear the way for Warsh to be confirmed before the end of his predecessor's term.

But continuing the probe would likely keep Powell in control of interest rates for well into Trump's second term.

Why Powell can stay after May

Powell's ability to hang on comes from the unusual way members and leaders of the Fed board are nominated and confirmed.

The Fed is run by a board of seven members, called "governors," all of whom are nominated by the president and confirmed by the Senate to staggered 14-year terms. Three of those board members are also nominated for separate four-year terms as board chair, vice chair and vice chair of supervision.

Powell's term as Fed chair ends in May, but his separate term as a Fed board member does not lapse until January 2028. Though most former Fed chiefs have left the bank upon the end of their tenure as chair, Powell has vowed to stay for as long as he is under criminal investigation.

"I have no intention of leaving the Board until the investigation is well and truly over with transparency and finality," Powell said in March.

Powell also said that he would serve as acting Fed chief from the end of his term as chair until the confirmation of his successor, drawing more backlash and threats of being fired from Trump.

In an interview last week with Fox Business Network's Maria Bartiromo, Trump said he would try to oust Powell if he does not leave by May 15 and defended the Department of Justice's (DOJ) ongoing criminal probe of the Fed and Powell's handling of renovations.

"Whether it's incompetence, corruption or both, I think you have to find out," Trump said.

Powell keeps control of interest rate panel

If Powell stays on after May 15, Trump could try to designate a temporary chair from among the Fed's other board members and challenge his position. Such a move would likely kick off another court battle over Fed independence but do little to change Fed interest rate policy.

Even if another Fed chair takes charge of the board's broad responsibilities, Powell has already been given the green light to remain as chair of the Federal Open Market Committee (FOMC), the larger panel of central bank officials in charge of setting monetary policy.

The FOMC in February voted unanimously to keep Powell in charge of the rate-setting committee until the confirmation of his successor.

"Regardless of who ultimately gets to choose the acting Fed Board chair, Powell is on firm legal ground to remain as chair of the Federal Open Markets Committee, which is the body that actually makes decisions regarding monetary policy, the issue that Trump cares most about," wrote the analysts at Beacon Policy Advisors.

The FOMC is scheduled to meet for the first time after Powell's term ends on June 16, giving the Trump administration just less than two months to clear the way for Warsh.

"With this in mind, the real deadline to watch for is June 16th when the FOMC will hold its next meeting," the Beacon analysts wrote. "While failure to confirm Warsh to the role by May 15th could frustrate markets and GOP lawmakers, it wouldn't radically upend Fed policy, making it something of a false deadline."

Senate GOP grows weary as Fed probe drags on

Senate Republicans are eager for the Trump administration to drop the investigation into the Fed and move on from its feud with Powell.

Unlike several of Trump's first-term Fed nominees, Warsh is expected to win the unanimous support of GOP senators in his eventual confirmation vote. Republican lawmakers are also desperate for anything resembling a win on economic policy ahead of the midterm elections, in which the GOP could lose control of the House and potentially the Senate.

A federal judge last month blocked two DOJ subpoenas sent to the Fed and Powell, derailing the case at a critical juncture and raising the chance of a breakthrough for Warsh.

But Trump and U.S. Attorney Jeanine Pirro, who is bringing the case against the Fed and Powell, have shown little interest in relenting, even as the political damage piles up.

"I think it's in everybody's best interest to wrap up the investigation. I've said that before, it would be better if it winds down," Senate Majority Leader John Thune (R-S.D.) said last week.