Criminal investigation raises key question: Whether Chair Powell leaves Fed in May

Federal Reserve Chair Powell’s Potential Stay as Governor Threatens Trump’s Plans

The Justice Department’s investigation into Federal Reserve Chair Jerome Powell has intensified focus on a critical question: Will Powell depart the Fed when his chairmanship ends in May, or take the unusual step of remaining as a board governor until 2028?

Due to the Fed’s complex governance structure, Powell’s term as one of seven members of the central bank’s governing board extends nearly four years beyond his chairmanship. While historically most Fed chairs have fully departed when their leadership term concludes, Powell could become the first in almost five decades to stay on as a governor.

Many financial and policy experts view the criminal investigation into Powell’s testimony about Fed building renovation costs as a potential intimidation tactic to force his early departure. David Wilcox, former Fed economist and senior fellow at the Peterson Institute for International Economics, believes Powell will likely stay.

“I find it very difficult to see Powell leaving before midnight on Jan. 31, 2028,” said Wilcox. “This is a mortal threat to the governance structure of the Fed as we’ve known it for 90 years.”

Powell, 72, was originally appointed as Fed chair by Trump in 2018. When asked about his future plans, he has consistently declined to comment. The stakes are extraordinarily high, as Powell’s decision could significantly impact the Trump administration’s ability to influence monetary policy.

Trump has repeatedly criticized Powell for not cutting interest rates aggressively enough, particularly as inflation concerns remain a significant political issue despite recent cooling. At a recent event, Trump referred to Powell as “that jerk” who “will be gone soon” while lamenting that lower mortgage rates would be easier to achieve “if I had the help of the Fed.”

If Powell remains on the board after May 15, Trump could still appoint a new Fed chair but would fall short of securing a board majority. This would leave the new chair with limited power to implement Trump’s desired monetary policies, as Powell and other members of the Fed’s 19-member interest-rate setting committee could effectively block dramatic rate cuts.

The investigation into Powell’s testimony regarding a $2.5 billion Fed office renovation project has already complicated Trump’s plans. Several Republican senators have expressed skepticism about the criminal allegations, with Senator Thom Tillis explicitly stating he would not vote for any Fed nominees until the cloud around Powell is resolved.

Should Powell depart completely, Trump would gain significantly more control over the central bank. He could nominate a fourth person to the board, securing a majority that could enable sweeping changes. Trump’s Treasury Secretary Scott Bessent has advocated for reforms to reduce the Fed’s influence in the economy and financial markets.

A Trump-appointed majority on the Fed’s board could even remove regional bank presidents who have opposed deep rate cuts. The board of governors has authority to seek the dismissal of these officials, who hold significant votes on monetary policy decisions.

While rare, there is historical precedent for Powell’s potential decision to remain. In 1948, Fed Chairman Marriner Eccles stayed on as a governor for three years after his chairmanship ended. Eccles later played a crucial role in establishing the Fed’s independence through the Fed-Treasury Accord of 1951, defying the Truman administration’s wishes on interest rate policy.

Similarly, Truman appointed William McChesney Martin to the Fed chairmanship expecting compliance, only to have Martin raise interest rates against the president’s wishes. Years later, an angry Truman confronted Martin in New York City, calling him a “traitor.”

Columbia University law professor Lev Menand sees these historical examples as cautionary tales for Trump. “It’s a cautionary tale also for Trump, thinking he’s going to get his own Fed chair in there,” Menand noted. “Martin didn’t do what Truman wanted.”

As May approaches, Powell’s decision will have profound implications not just for monetary policy but for the independence and governance structure of an institution that has remained relatively insulated from political pressure for nearly a century.