Warsh revolution is coming to the Fed. Powell won’t stop it: Analysis

How do you change regimes when the head of the old one isn’t leaving?

That will be the question facing Federal Reserve chair nominee Kevin Warsh next month once confirmed by the Senate, now that outgoing Chair Jerome Powell has confirmed he will stick around indefinitely as a voting member of the Fed’s Board of Governors.

Powell’s decision to stay has little precedent in Fed history, but it may be less disruptive to Warsh’s plans than it might otherwise seem. Powell said at a Wednesday press conference that he has no desire to be a “shadow chair” and that his plans for an extended tenure at the Fed are aimed squarely outside the infamously crumbling walls of the Marriner S. Eccles headquarters building.

Powell’s rejection of the shadow chair idea is fitting given that it was an idea floated specifically to undermine him. Treasury Scott Bessent proposed the plan for a shadow Fed chair in October 2024 when he was still a private citizen. Now-President Donald Trump was fed up with Powell before he’d even won election that year, so Bessent proposed designating a replacement far in advance. “Based on the concept of forward guidance, no one is really going to care what Jerome Powell has to say anymore,” Bessent said. 

Trump still cares about Powell, but Powell went out of his way Wednesday to suggest that Warsh needn’t be overly worried about having an ex-chair hanging around. 

“There’s only ever one chair,” Powell said. Like Warsh, Powell was appointed by Trump before the president soured on him.

“I’m not looking to be, you know, a high-profile dissident or anything like that,” he added.

He is looking instead to ward off the threats he sees to the Fed’s independence from the Trump administration’s legal attacks on the independent central bank. Congress gave the Fed the power to set interest rates without thinking about politics, and Powell plans to keep it that way. Otherwise politicians of all stripes will be tempted to juice the economy through lower rates and risk surging inflation. 

Powell wants to see a definitive resolution to the criminal investigation brought and then dropped by U.S. Attorney for the District of Columbia Jeanine Pirro. She has said she plans to appeal judge’s decision to quash her subpoenas. Sen. Thom Tillis, R-N.C., who was key in brokering an understanding between Pirro and Powell, said Sunday he believed Powell would likely stay on until the appeal was resolved. That could take months.

Powell’s decision to stay at the Fed essentially brackets those Trump-related fights for Warsh. Powell effectively becomes the board’s designee for Trump fights, while Warsh goes about the business of putting his stamp on the Fed. 

That could mean even nixing the…