Jerome Powell's term as Federal Reserve Chair has less than two months remaining, set to expire on May 15. Since a court ruled in his favor last Friday, the situation has become even more uncertain. This late spring, as inflation remains stubbornly high, job creation stalls, and overseas conflicts drive up energy prices, the question of who will lead the world's most important central bank is becoming surprisingly unpredictable. The current clash between law and politics is significant enough to be recorded in central banking history—and no one knows who will be the first to yield. The next steps for the appointment process of Kevin Warsh, whom Trump nominated to replace Powell, are now more ambiguous than ever. A federal judge dismissed a subpoena issued by the Department of Justice last Friday for documents related to the Fed building renovation and Powell's testimony on the matter, calling it a clear pretext. Judge James Boasberg cited Trump's repeated criticisms of Powell and demands for his resignation in speeches and social media posts. Boasberg wrote that the court "has no reason to believe the government is investigating suspicious facts, rather than targeting an unpopular official." He added that it is "difficult to view these renovation issues and testimonies as anything other than serving an unstated purpose—namely, to pressure Powell into submission." For a brief moment last Friday, it appeared to be an opening that could allow Warsh's nomination process to move forward. It seemed a way for the Justice Department to quietly conclude its investigation, thereby persuading Republican Senator Thom Tillis to drop his insistence on blocking Warsh's nomination in the Senate Banking Committee while the DOJ probe was ongoing. However, U.S. Attorney for the District of Columbia Jeanine Pirro then held a press conference, displaying an attitude far from retreat. She called the ruling "excessive," attacked the judge, and promised to appeal the decision. "Jerome Powell is now shielded by immunity, preventing my office from investigating the Federal Reserve," Pirro said. "This is wrong and has no basis in law." Trump showed no signs of backing down in a social media post on Sunday evening, attacking the judge and stating that Powell and the renovation contractors "should also be scrutinized thoroughly." One of the precedents cited by Boasberg was a case where a court ruled that a grand jury subpoena from Manhattan District Attorney Cyrus Vance Jr. for Trump's business records could be quashed if it was improper and intended to interfere with his official duties. All of this leaves several potential paths forward.
Perhaps the appeals process will move forward with unusual speed;
Or, after tempers cool, the Justice Department may seek to quietly drop the investigation into the Fed, Tillis relents, and the Senate confirms Warsh, allowing him to take office in May;
Perhaps Tillis will back down, though his statement last Friday showed no indication of that;
Or perhaps the Senate could confirm Warsh without going through the Banking Committee—a rarely used procedure that would cause some displeasure but is feasible (as seen with the 2022 Supreme Court nomination of Ketanji Brown Jackson, which bypassed a deadlock in the Judiciary Committee).
Even stranger possibilities exist if Warsh is not confirmed by May 15. On two past occasions, a sitting chair has remained in place after their term expired (Powell in 2022 and Alan Greenspan in 1996). However, those were situations where the President had already renominated them, and they were merely awaiting confirmation. Trump, of course, is currently very eager to see Powell removed. One can imagine a scenario where the Federal Reserve Board selects an "interim chair" during the vacancy, potentially appointing Vice Chair Philip Jefferson to the role. None of this is normal, and the clock is ticking for the key parties to resolve the situation.
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