The White House's room to install its own people at the Federal Reserve has narrowed sharply after control of the Senate changed hands.
JPMorgan economist Michael Feroli pointed out that the only Fed governor seat expiring over the next two years is Chair Powell's own position, which comes up in January 2028, and if the White House wants to fill it, it must nominate someone acceptable to Democratic senators, or simply leave the seat vacant.
At the same time, the political value of removing Governor Cook has shrunk accordingly, and even current Chair Warsh's path to reappointment now faces fresh congressional lobbying pressure.
Over the past two years, Fed independence has come under rare strain. The White House attempted to remove a sitting Fed governor, something unprecedented in the central bank's history. But with the change in Senate control, the power of that card is fading fast.
According to research cited by a trading desk, JPMorgan chief economist Michael Feroli said in a November 4 research report that the Senate flip will significantly reduce that risk. The reason is simple: Fed governor appointments require Senate confirmation, and now the White House must find a nominee acceptable to Democratic senators, or the seat can only sit empty.
Powell's legacy: the only vacancy
Over the next two years, only one seat on the Fed's Board of Governors comes due: Powell's own chair term, which expires in January 2028.
That means under the new Senate configuration, if the White House wants to fill the seat, it has no choice but to nominate a candidate acceptable to Democratic senators, or simply leave the seat open.
Feroli wrote in the report: "The election result means the administration now needs to replace Powell with someone acceptable to Senate Democrats, or it can only leave the seat vacant."
Media reports also concluded that Democratic control of the Senate, especially the Senate Banking Committee, has effectively blocked Trump's ability to install loyalists on the Fed's board.
Democratic Senator Elizabeth Warren, a longtime supporter of Fed independence, is expected to become chair of the Banking Committee, and future Trump nominations of Fed officials could face stricter scrutiny or even be shelved.
That may also give the Fed and its chair, Warsh, more room to fight inflation by raising interest rates.
What removing Cook would mean
The White House had been pushing to remove Fed Governor Cook. But after the Senate changed hands, the practical significance of that move has shrunk considerably.
Feroli's report spelled out the logic directly: even if the removal succeeded, the vacated seat would not fall into the hands of someone favored by the administration.
In other words, the political cost of removing Cook cannot buy a corresponding personnel payoff.
Beyond the board, the selection of regional Fed presidents is also indirectly affected. The report noted that several media outlets had previously reported that the Atlanta Fed, in searching for a new president, had contacted at least one former Trump administration official.
Feroli said the shift in Washington's political landscape could change the priorities in such selection processes.
That does not mean, however, that the Fed can rest easy from now on. The president still holds the power to nominate governors, and the executive branch can also pressure the central bank through other administrative and legal means. Democratic control of the Senate can block some appointments, but it cannot fully restrain the White House from pressuring sitting Fed officials.
The new pressure facing Warsh
Current Fed Chair Kevin Warsh's term runs until May 2030. Before the next election, the Senate's political landscape is likely to remain dominated by Democrats, adding another hurdle to Warsh's path to reappointment.
Feroli wrote in the report: "Unless he is content to serve just one term as chair, Warsh needs to spend less time looking out the window and more time walking the corridors of Congress."
That echoed the public advice Powell gave his successor before leaving. Powell once said: "Congress is our window to democratic accountability. Going to Congress and communicating with people is not a passive burden, but an active, regular duty."
The above highlights come from a trading desk. For more detailed interpretation, including real-time analysis and front-line research, please join the annual membership. Markets carry risk, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article fit their particular circumstances. Investment based on this article is at one's own risk.
Comments