US President Donald Trump suddenly has a chance to fill an opening at the US Federal Reserve earlier than expected, after Fed Governor Adriana Kugler announced her resignation on Friday.
It might also force him to pick the next Fed chair months sooner than he had anticipated.
“The ball is now in Trump’s court,” LH Meyer/Monetary Policy Analytics Inc economist Derek Tang said. “Trump is the one who’s been putting pressure on the Fed to do this and that, and Trump says he wants to have his own people on. So now he has the opportunity.”
Photo: Reuters
Kugler’s exit unfolds amid unprecedented public pressure from the White House on the central bank over monetary policy, with Trump regularly launching personal insults at Fed Chair Jerome Powell on social media. On Thursday, he called the Fed chief “TOO ANGRY, TOO STUPID, & TOO POLITICAL” for refusing once again — along with several other policymakers — to lower interest rates.
Kugler’s resignation creates an immediate opportunity for Trump to install an official at the Fed who can push for those lower rates, rather than having to wait until January when her term was due to expire to appoint a replacement.
Yet one more vote in Trump’s favor does not come close to ensuring a rate cut. Last week, the Federal Open Market Committee (FOMC) — the rate-setting panel that is comprised of seven governors and five of the regional reserve bank presidents — voted 9-2 to leave rates unchanged. The two dissenting votes came from a pair of officials appointed by Trump during his first term in office.
However, arguably more important than a solitary vote is that Kugler’s announcement might affect Trump’s timetable to choose the next central bank chair.
That is because, if he wants to pick an outsider to join the board — such as National Economic Council Director Kevin Hassett or former Fed governor Kevin Warsh — he might not get another chance soon.
Powell’s term as chair ends in May next year, but his underlying post as a governor extends into 2028. While it is typical that outgoing chairs also resign from the board, Powell has so far declined to reveal his plans. If he does not depart altogether, Trump would not get another opening on the board to fill before 2028.
Under that scenario, the US president might be forced to fill the Kugler opening with the person he intends to promote in May. If he is anxious to add a new loyalist to the board as soon as possible, he would have to decide soon who that chair would be.
“The key implication is that this is the one vacancy that President Trump has to work with,” said Tobin Marcus, head of US policy and politics at Wolfe Research. “So if he wants the next chair to come from outside the current Fed board of governors, we’ll see who that person is sooner rather than later.”
To others, the opening does not guarantee a quick move.
“If Trump knows who he wants to nominate as chair of the board, there’s no reason not to act now, but it’s not an action-forcing event,” said Adam Posen, president of the Peterson Institute for International Economics in Washington. “The board has functioned with fewer than seven members before, and the administration doesn’t seem to mind under-staffing essential positions.”
There has been no indication that Trump has made up his mind on the job. Hassett, Warsh, US Secretary of the Treasury Scott Bessent and Fed Governor Christopher Waller are all said to be contenders.
Whenever he makes a choice, that nominee would also require confirmation by the US Senate, a process that can take months before they are installed on the board.
“Even with this Republican Senate, it takes a bit of time to get somebody through the mill,” said David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution in Washington. “So it could drag out.”
Even after Trump installs a new chair, a successor to Powell would not guarantee any immediate change in policy at the Fed. Rates can only be adjusted by a majority vote of the FOMC.
Chairs are traditionally given substantial deference by FOMC members in their pleas for consensus when opinions on the committee divide, but that consensus would be difficult to achieve if the new chair cannot muster a convincing economic argument for cutting rates.
Last week was the first instance since 1993 that two governors voted against an FOMC decision.
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