Amna Nawaz:
The Federal Reserve held rates steady today, as expected, but it was a significant day for the central bank as it transitions to new leadership.
Kevin Warsh, President Trump’s pick for Fed chair, was confirmed in a Senate committee vote, clearing the way for a full Senate vote in mid-May. The central bank’s current head, Jerome Powell, stated that he will step aside when his term is chair ends May 15, but he will remain on the Federal Reserve Board of Governors.
Powell made clear today he was staying on to make sure that a probe into the Fed headquarters of renovations launched by the Trump administration is — quote — “well and truly over.” He also addressed the persistent attacks from the president himself.
Jerome Powell, Federal Reserve Chairman:
I have never suggested that such a verbal criticism is a problem, and neither has anyone else here. But these legal actions by the administration are unprecedented in our 113-year history, and there are ongoing threats of additional such actions.
I worry that these attacks are battering the institution and putting at risk the thing that really matters to the public, which is the ability to conduct monetary policy without taking into consideration political factors.
Amna Nawaz:
David Wessel of the Brookings Institution is tracking all of this as usual and joins me now.
It’s good to see you.
David Wessel, Brookings Institution:
Good to see you.
Amna Nawaz:
So Powell’s decision to stay on the Federal Reserve Board of Governors even after his chairmanship ends, how unusual is that?
David Wessel:
It’s unusual.
The last time it happened was in 1948, when Marriner Eccles’ term as chairman was up. But at that time, President Truman asked Eccles to stay on the board. That’s the only time this happened before. It’s pretty unusual.
And, as you said, it’s because he says, I’m staying until this criminal investigation of me and the building ends. You want me off the Federal Reserve Board, finish the investigation.
Amna Nawaz:
So what is your sense of when he might feel satisfied that things — as he puts it, things have calmed down, that he can step down?
David Wessel:
Well, the U.S. attorney has said that she’s waiting for a report by the Fed’s inspector general, which actually is something that Powell himself initiated several months ago.
My guess is that, for the next few months, Powell will stay there. He says he’s going to keep a low profile, and that some time later this year, the I.G. will report, and the I.G. will say that it wasn’t well managed, but there were no criminal charges or no criminal wrongdoing. And, at that point, Powell will go. That’s my guess.
Amna Nawaz:
So let’s turn now to his likely successor here, Kevin Warsh. He cleared the Senate Banking Committee vote today. He did face a lot of questions in his confirmation hearings about his independence from President Trump if he’s fully confirmed.
Is there any reason to believe that he won’t make it through a full confirmation vote in the Senate?
David Wessel:
No, the problem was in the Senate Banking Committee. It was a very partisan vote, though. That’s unusual. Usually, Fed chairs are more bipartisan. It was 13-11 Republicans and Democrats. He’s almost certain to be confirmed, and I suspect he will be sworn in before May 15, which is the day that Jay Powell’s term as chair ends.
Amna Nawaz:
And he insisted that he will maintain independence from President Trump when he was asked about this. But he also talked about regime change, about big changes in the way the Fed communicates with the public. What would you expect to see from him as Fed chair?
David Wessel:
Well, he does insist that he’s going to be independent. But the question is not what he says, but what he will do and how he will react if the Fed doesn’t rate lower interest rates, as President Trump asks, how he will respond.
I don’t know what regime change means. It might be some changes in the Fed’s communication, in the forecast they make, in how he does the press conferences. My guess is going to be very slow change. I don’t think he’s going to come down and turn the place inside out.
Amna Nawaz:
But the chair doesn’t rule the Fed, right? All the — it can move the board, but all the board members have to vote on the changes and the policy. Based on the current board makeup, are there people there who will disagree with Warsh, who would push back on some of these changes?
David Wessel:
Absolutely.
And, remember, monetary policy is made by a committee, the seven governors in Washington and five of the 12 Reserve bank presidents out in the region. And at today’s meeting, three of those presidents basically fired a shot across Kevin Warsh’s bow. They said they did not want a statement that implied that the Fed’s next move is to lower interest rates.
So he’s not going to be able to do anything on interest rates very quickly, because so many of the policy members are against him. And he still has to deal on major changes in Fed communications and stuff. He will need a consensus of the board. So I suspect this will be a slow process.
It will be interesting how he deals with a bunch of people who he’s been accusing of screwing up for the last 15 years since he left the Fed. There might be some interesting conversations, but he’s a pretty smooth guy.
Amna Nawaz:
There’s also the ongoing case against Fed Board member Governor Lisa Cook.
David Wessel:
Right.
Amna Nawaz:
The Trump administration has accused her of mortgage fraud. She’s been fighting that and her dismissal. It’s before the Supreme Court right now. If she is ousted, how does that change the makeup of the board or President Trump’s influence?
David Wessel:
Well, there’s seven members of the Federal Reserve Board and there are three who are Trump appointees. One will leave when Kevin Warsh gets there. If anybody goes, Lisa Cook, Jay Powell, Michael Barr, if anything goes, then the Trump appointees will have a majority and it will be easier for them to do something if they all agree on what they want to do.
And I think that’s what the president wants.
Amna Nawaz:
We will wait and watch and see.
David Wessel, always good to see you. Thank you so much.
David Wessel:
You’re welcome.
