Powell’s time at the FED might not be over as soon as we thought, as a Senate hearing for Federal Reserve chair nominee Kevin Warsh won’t be held this week as planned. Powell’s term as Chair of the Federal Reserve expires on May 15, yet his seat on the Board of Governors runs through January 2028.
His recent remarks suggest he is in no rush to leave. In fact, his tone has been interpreted as defiant, hinting he could remain at the Fed even if a successor, such as Kevin Warsh, were nominated for the Chair. This is very unusual as only one former chair has done this before. It was Marriner S. Eccles, the 7th Chairman of the FED. He served from 1934 to 1948 and then remained on the Federal Reserve Board of Governors until 1951.
The Tillis Blockade
At the center of the current standoff is Thom Tillis, who has effectively frozen the Warsh nomination process.
Tillis has stated he will refuse to vote for any Federal Reserve nominee until the United States Department of Justice drops its criminal probe into Powell. Both Tillis and Powell argue that the investigation is politically motivated; a clear attempt to undermine the independence of the central bank. Powell, denies any wrongdoing and has suggested he is being targeted for resisting pressure to cut interest rates more aggressively.
The pressure Trump is putting on the FED, and especially at Powell, is something we wrote about in August last year, when an attempt to oust Lisa Cook started. More about it here: The Federal Reserve Shakeup – InterCapital
Tillis has also referenced that situation surrounding Lisa Cook and the Supreme Court of the United States has yet to rule on whether a president has the authority to remove a sitting Fed governor.
The Investigation
The investigation itself centers on allegations that Powell misled Congress regarding cost overruns tied to renovations of the Fed’s Washington headquarters. While a federal judge has now blocked the probe for a second time, the situation is far from resolved.
Jeanine Pirro, U.S. Attorney for the District of Columbia, is reportedly planning to move forward regardless, which shifts the case toward the appeals process. That process could take months, or even years according to some.
This creates a critical bottleneck. A nomination hearing for Warsh could still take place, but without Tillis, there is no clear path to a Senate floor vote in the United States Senate.
Market expectations
All of this unfolds at a particularly fragile macro moment.
- Inflation remains sticky, hovering near 3%
- Tariff-related price pressures are by some still expected to filter through
- Ongoing conflict in the Middle East continues to disrupt energy supply chains
Despite this, markets are still leaning toward easing. Roughly half a rate cut is priced in by later next year. This stands in contrast to the European Central Bank, where expectations have shifted toward tightening again into the end of 2025, with almost 3 hikes priced in.
Figure 2 World Interest Rate Probability FED, Bloomberg
A Fed Without Clarity
The result is a rare configuration:
- Political pressure from POTUS to cut rates
- A Chair whose term is expiring, but who may stay
- A successor whose nomination is stalled
- A legal process with no clear timeline