Now It's The Fed Chair's Choice: Should He Stay Or Should He Go?
Just to be clear, I’m not saying that the Clash had those numbers right re the trouble ratio if he stays or if he goes. But it did seem to be the relevant hook.
Now that the pathway for replacing Federal Reserve Chair Jerome Powell with Trump’s nominee, Kevin Warsh, was cleared yesterday, I expect Warsh’s nomination to quickly get out of committee and over to the Senate floor, where he should have no problem getting a majority (he may not get any D votes, but he doesn’t need them). He could then take over the chair in mid-May, when Powell’s term as chair ends.
Why the bold above? Because even though Powell’s term as chair ends, his term on the Fed board doesn’t end until January ‘28. The norm, however, is for Chairs to leave the building once their Chair term ends, with, as far as I can tell, one exception: when Marriner Eccles stepped down from the Chair in 1948, he rolled over to the Fed board for another few years.
In this case, if Powell stayed on, Miran would have to resign to make room for the newly minted Chair Warsh to take over.
A number of folks, including commenters here, have argued to me that, in the interest of protecting this critically important institution and the economy itself from Trump’s destructive influence, Powell should emulate Eccles. I certainly understand their argument, but I’m not wholly there. I’ll explain my thinking, but only briefly, because this is Powell’s call and there’s nothing anyone can tell him about this that he doesn’t know. (Read Nick Timiraos in the Wall Street Journal this morning for a comprehensive treatment of the stay/go question, with strong stay-vibes from former Fed economist David Wilcox, who knows more about the inner workings and history of the institution than most).
The motivation for stay, Jay, stay! is understandable nervousness about Warsh’s independence from Trump, a concern I share and have written about in recent days. Powell has been a fierce defender of such independence and thus his presence, especially absent Miran, who has consistently voted, often alone, for the rate cuts Trump wants, would be reassuring in that regard.
There’s no doubt in my mind that Powell’s staying on the board would yield better, more balanced, and more independent-from-Trump monetary policy, which would in turn be better for the U.S. and even the global economy. But there are two countervailing factors.
First, Powell has earned the right to do whatever he sees fit. He’s delivered consistently thoughtful, carefully explained, effective monetary policy in 14 years of service, eight of which he was chair. And many of those years were under Trump (who, for the record, reappointed him), wherein he got more presidential harassment than any Fed chair in history, from daily badgering and name-calling, to a phony criminal inquiry.
To be clear, our hearts should not over-bleed for him. He also had one of the coolest jobs in the world, backed by a deeply talented staff and some very smart colleagues on the board. You take the bad with the good. But the point is he served admirably, and has not only pulled rabbits out of monetary-policy hats—the post-pandemic soft landing, which many tony economists said couldn’t happen—but stood up to Trump and preserved the Fed’s independence. He’s earned the right to make whatever next move he desires.
But second, and I know not everyone will share this take, Warsh deserves the chance to establish himself as the new chair without the old chair hanging around. Readers know that I fear where he’s going with his new gig, but under the assumption that he’s legitimately confirmed in coming days, he has the right to takeover and begin to put his imprimatur on the joint.
If Powell should decide otherwise, i.e., that, as Wilcox argued in the Timiraos Wall Street Journal piece, the institution should at least initially be protected from Warsh’s unencumbered leadership, or, for that matter, that he (Powell) is still at risk of prosecution from the bullshit inquiry that Trump cooked up, I’ll of course support his decision.
But the norm of the Chair stepping down is a norm for a good reason: clearing the path for the new Chair is good for the institution. Of course, independent monetary policy is also very good for the institution, so there are good arguments on both sides.
Luckily, there’s only one person who has to make that call. And his call will be the right one.
Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his Substack.
