’Shadow’ Fed chief would not influence policy debate, Goolsbee tells CNBC
By Howard Schneider
WASHINGTON (Reuters) -Any move by U.S. President Donald Trump to name a replacement for Federal Reserve Chair Jerome Powell would have no influence on monetary policy while the nominee awaited confirmation, Chicago Fed President Austan Goolsbee said on Thursday.
"That would have no effect," Goolsbee told CNBC’s "Squawk Box" program, referring to the possibility Trump may name an early nominee to replace the current U.S. central bank chief when his term ends in 11 months in hopes of influencing interest rates in the meantime. "We have a chair of the (Federal Open Market Committee) ... That’s Jay Powell. What somebody who is not the chair thinks about monetary policy - they can have whatever opinion they want. We have to go every six weeks and have votes."
Trump has become increasingly pointed in calling for the Fed to cut rates, even as most of its policymakers feel the central bank is sidelined until the administration makes final decisions on what level of tariffs it plans to impose, and they can study the impact of those rising import taxes on inflation.
In hearings before Congress this week, Powell reiterated that the Fed is prepared to cut rates if the tariffs have no effect on inflation, but that economists broadly anticipate the steep levies imposed so far and still in the offing will raise prices over the course of the year.
The effect on inflation "could be large or small. It is just something you want to approach carefully. If we make a mistake people will pay the cost for a long time," Powell said.
Since the Fed held rates steady at its meeting last week, several central bank officials have said they agree it is best to wait on rate cuts; Fed Vice Chair for Supervision Michelle Bowman and Fed Governor Christopher Waller, both Trump appointees, have said rates could be cut as soon as the July 29-30 meeting, given recent moderate inflation readings.
Waller was mentioned in a recent Wall Street Journal article as a possible replacement for Powell, with the added benefit to Trump that he already has a vote on policy and relationships among his colleagues built since joining the Fed’s Board of Governors in January 2020.
Other possible nominees mentioned by the media include former Fed Governor Kevin Warsh, who has close ties to the Trump organization and was almost named central bank chief in the president’s first term in the White House, as well as Kevin Hassett, who is the director of the White House’s National Economic Council, and Treasury Secretary Scott Bessent.
The debate is playing out amid both ambiguous data and increased political focus on Powell.
RENEWED SPECULATION
Recent inflation readings have been better than expected, but many companies insist prices will rise. The unemployment rate remains low. But data released on Thursday showed the overall economy shrank more than initially estimated in the first quarter after consumer spending was revised lower, weakening a key economic prop cited by policymakers who feel there is little risk in delaying rate cuts.
Meanwhile, the dollar has dropped amid talk of the "shadow" Fed chief idea and the possible implications for U.S. central bank independence.
"Trump’s desire to ’shadow’ the Fed using a designated replacement for Chair Jay Powell isn’t a good way to promote the perceptions of integrity and autonomy in U.S. policymaking and, by extension, that of the reserve currency status of the USD (U.S. dollar)," said Thierry Wizman, global FX and rates strategist at Macquarie Group (OTC:MQBKY). "Some of this narrative is seeping into perceptions of the USD and contributing to its sell-off this week."
Trump recently said he would name Powell’s replacement "soon." Speaking at a NATO summit in Europe on Wednesday, the president said his list of possible nominees was down to "three or four."
Those comments have renewed speculation Trump might name a successor early and hope that a chair-in-waiting, or "shadow" Fed chief, could have an immediate impact on rates. Absent an unforeseen resignation and except for Waller, a sitting governor, Trump’s nominee could not join the Fed’s board until early next year when there is an expected vacancy.
Powell’s term as Fed chief does not end until next May, and a recent Supreme Court decision appeared to insulate him from being fired over a policy dispute - a fact that could limit Trump’s ability to reshape the central bank before his second and final term ends in January 2029.
