On January 15, Nick Timiraos, a prominent financial journalist often referred to as the "new Fed correspondent," wrote that the criminal investigation into incumbent Federal Reserve Chair Jerome Powell is radically reshaping the succession race, which had already entered its final stages. The article points out that this event has not only created new obstacles on Capitol Hill but has also sparked sharp questions about the "independence" of any potential nominee—a tension that already existed but has now become impossible to ignore. Trump has consistently made it clear that he values a candidate's "loyalty." However, as Powell himself has stated, this Justice Department investigation is essentially a pressure tactic to force the Fed to cut interest rates, thereby turning the very trait of "loyalty" into a potential "liability" for a nominee. The article states that the strong congressional backlash may force the ultimate nominee to perform a delicate balancing act during confirmation hearings this spring: they must avoid angering the President by challenging Trump's efforts to pressure the Fed, yet they cannot appear too cozy with Trump, lest they provoke concerns about their independence from lawmakers or the markets. Timiraos notes that one leading candidate, Kevin Hassett, attracted criticism for attempting to defend the investigation in an interview, calling it legitimate government oversight; this has conversely given Kevin Warsh a relative advantage. Furthermore, if Trump selects Christopher Waller as Powell's successor, Powell would be more likely to voluntarily resign from his Governor position, which is not due to expire until 2028. This would free up an additional Governor seat for Trump to fill, allowing him to appoint a total of two vacancies this year. Former Fed Chair and former Treasury Secretary Janet Yellen was blunt in her assessment: "Trump has painted himself into a corner by stating he will refuse to appoint anyone who disagrees with him or doesn't act according to his wishes. Starting from that premise itself undermines a candidate's credibility." Analysis suggests that the investigation, intended to apply pressure, may instead tie Trump's hands, forcing him to bow to the principle of "independence"; otherwise, the nomination risks being indefinitely stalled by Congress, exposing markets to significant uncertainty. The "Ultimatum" from the Senate: Independence as the Core Red Line Timiraos reports that the most immediate consequence of the political storm triggered by this investigation is resistance from within the Senate Republican caucus. Senators Thom Tillis of North Carolina and Lisa Murkowski of Alaska have explicitly stated this week that they will not vote for any nominee until the investigation is concluded. As a member of the Senate Banking Committee, Tillis's stance is crucial. He even used a vivid analogy to express the firmness of his resolve: "Under the current circumstances, I wouldn't consider my own mother for the position until we get this sorted out." He emphasized that this is a foundational issue determining the Fed's future direction. As a long-time critic of the Trump administration, Tillis's words are not empty talk; with support from Democrats, he possesses the ability to stall this nomination. So, why does this investigation make the nomination process so precarious? Timiraos argues that it's akin to wanting to replace someone in a role that requires not only professional competence but also public trust. However, if the incumbent is being investigated for being "disobedient," a successor who appears too "obedient" would be viewed as a puppet, thereby losing the market's confidence. Tillis hinted that candidates perceived as closer to Trump will face more intense scrutiny on the issue of independence. In contrast, Fed Governor Christopher Waller, who lacks close ties to the President, might become a "safe bet" to alleviate such concerns. The "Two Kevins" Contest: Loyalty vs. Political Baggage The article states that although other candidates have emerged, the core of the contest remains the so-called battle of the "two Kevins": former Fed Governor Kevin Warsh and White House National Economic Council Director Kevin Hassett. Hassett, due to his close relationship with Trump, was once a strong contender for the position, but that very relationship may now have become his Achilles' heel. During an interview with CNBC this week, he expressed hope that "Jay [Powell] is okay," while simultaneously attempting to defend the investigation as legitimate government oversight. He said: "This is part of how the government works, having the inspector general check to make sure that you're doing everything completely above board." These remarks quickly drew criticism from economists and analysts. Jason Furman, an economic advisor during the Obama administration, stated bluntly that it was "sad but not surprising" to see Hassett accepting this as an "above-board, legitimate, independent investigation." Such a stance, defending what is seen as a political attack, clearly conflicts with the persona required to lead an independent central bank. In contrast, while Warsh has publicly dismissed concerns about Fed independence and even hinted that Powell brought this upon himself, he is not currently serving in the White House and thus does not face the daily pressure to defend the administration's controversial actions in the media, unlike Hassett. Some Trump allies believe that as the investigation into Powell escalates, Hassett's standing in the Senate may be damaged, conversely giving Warsh a relative advantage. A Murky Future and Potential Political Maneuvering Regarding future trends, Timiraos notes in the article that Trump remains unpredictable to his advisors. An informed source revealed that the current frontrunner "somewhat depends on the specific day." While Trump recently hinted that he might prefer to keep Hassett in his current role because he appreciates how Hassett defends policies on television, he has also been impressed by Warsh's sharpness and profile. This leads to a deeper strategic question: What benefit does Trump gain from choosing a "safe bet" over a "loyalist"? The article also mentions a very pragmatic consideration. The Trump administration has long hoped that Powell would leave the Fed entirely after stepping down as Chair. While Powell's term as Chair ends in May, his term as a Governor lasts until 2028. Analysts believe that if Trump selects Waller—a colleague respected by Powell—as the successor, Powell would be more likely to voluntarily resign his Governor seat. This would free up an additional Governor seat for Trump to fill this year. However, if the investigation escalates into a criminal indictment, the situation would become even more unpredictable. Larry Kudlow, who served as Director of the National Economic Council during Trump's first term, warned on Fox News that unless the investigation into Powell is dropped, the President will be unable to get his Fed Chair nominee confirmed. The article concludes by reiterating that the impact of this event extends far beyond a simple personnel appointment. It represents a profound struggle over the independence of the Federal Reserve and the boundaries of presidential power. D.C. federal prosecutor Jeanine Pirro claims the investigation aims to determine if Powell lied to Congress, while Powell maintains it is a pretext to force interest rate cuts. The article states that in this contest, whoever ultimately receives the nomination will carry significant political baggage. For the markets, this uncertainty is the greatest risk. As Timiraos writes: The investigation, originally intended to apply pressure, may instead have tied Trump's own hands, forcing him to bow to the principle of "independence" when selecting a successor, or face the risk of the nomination being indefinitely stalled by Congress during an election year.
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