While Jerome Powell has stated his intention to serve out his full term, his potential resignation is a topic of significant speculation, particularly given the public pressure from the Trump administration. If he were to resign, a number of things would happen, with both immediate and long-term implications for the U.S. and global economy.
1. Immediate Market Reaction
A sudden resignation from a Fed Chair would likely cause significant market volatility.
- Stock Market: The stock market would likely react negatively, at least initially, due to the uncertainty created by the sudden leadership change.
- Bond Market: Bond yields would likely see a sharp "steepening" of the Treasury curve. This means short-term yields would fall as markets price in expected interest rate cuts, while longer-term yields might rise due to concerns about future inflation and a potential loss of central bank independence.
- U.S. Dollar: The value of the U.S. dollar would likely decline, as a less independent Fed could be seen as more likely to pursue policies that weaken the currency.
2. Succession and a New Fed Chair
The Federal Reserve Act of 1913 outlines the process for filling a vacancy. The President would nominate a new Chair, and the nominee would then need to be confirmed by the Senate.
- The new nominee: Given the public criticism from the Trump administration, it is widely expected that a new nominee would be someone who favors more "dovish" policies, meaning they would be more inclined to lower interest rates and pursue a more accommodative monetary policy.
- Potential Candidates: Several names have been floated as potential replacements, including:
- Chris Waller: A current Fed Governor who has a strong academic background and is seen as being more "dovish" than Powell.1
- Kevin Warsh: A former Fed Governor with a hawkish reputation who has a good relationship with the current administration.
- Kevin Hassett: The director of the White House National Economic Council.2
- Scott Bessent: The current Treasury Secretary.
- Chris Waller: A current Fed Governor who has a strong academic background and is seen as being more "dovish" than Powell.1
- Acting Chair: In the interim, the Vice Chair of the Federal Reserve would serve as the acting Chair until a new one is confirmed. The current Vice Chair is Philip Jefferson.3
3. Impact on Monetary Policy
A change in leadership would likely lead to a significant shift in monetary policy.
- The new Chair, likely a more dovish nominee, would be expected to cut interest rates and ease other monetary policies more aggressively than Powell has.
- This could lead to a more divided Federal Open Market Committee (FOMC) as members who were supportive of Powell's more cautious approach might dissent from the new direction.
- The shift in policy would be aimed at stimulating economic growth, but it could also risk exacerbating inflation and potentially undermining the Fed's long-standing reputation for independence from political pressure.
In short, a resignation from Jerome Powell would be a major event that would create significant uncertainty and likely lead to a new era of monetary policy in the United States.
