POLITICO’s very own Victoria Guida asked Federal Reserve Chair Jerome Powell if he would step down from the central bank in the event newly elected President Donald Trump asks him to leave. His answer?: “No.” What’s more, Powell declared that it’s “not permitted under the law” for presidents to remove members of the independent Fed. Powell’s preemptive strike against any attempt that Trump or his allies might make to undermine the Fed’s leadership set a marker in what could become a massive fight over the central bank’s future. Trump is no fan of Powell — whom he appointed as Fed chair in 2017 — and there’s been rampant speculation over whether he might try to influence interest rate decisions. The stakes are huge. Powell and other Fed policymakers say the central bank needs to remain insulated from political influence if it’s to keep inflation in check and labor markets steady. Many Wall Street investors and economists agree. But Trump wants a say in how policymakers set rates and has repeatedly used the bully pulpit — and his immense social media presence — to badger Powell over decisions he didn’t like . Your MM host wrote earlier this year about how Trump’s frequent harangues about monetary policy may have influenced economic perceptions and the market’s rate expectations during his first term. It’s a strategy that Trump will likely deploy again in his second term as Powell charts an uncertain course amid falling inflation . Meanwhile, Trump allies who are poised for big roles in his second administration have floated plans that could make Powell’s job harder. Sen. Bill Hagerty (R-Tenn.), a possible candidate for Treasury, on Thursday told Bloomberg that “everything should be on the table,” including the dismissal of Fed Vice Chair for Supervision Michael Barr . Hagerty dubbed Barr’s Basel III endgame proposal calling for a significant increase in bank capital requirements a “rogue operation that has put a great deal of uncertainty to the marketplace.” Scott Bessent, a hedge fund executive who has emerged as a key economic adviser, has publicly floated the appointment of a “shadow Fed chair” who can wait in the wings and provide forward guidance on policy until Powell’s term as chair expires in May 2026. The creation of such a position would instantly transform Powell into a lame duck and undercut any signals he might provide to the market on the central bank’s rate path, Ajay Rajadhyaksha, the global chair of research at Barclays, told MM. “The big deal in my mind is if the ‘shadow’ Fed chair is appointed. That’s a big thing,” Rajadhyaksha said. “The only points in the bond curve that would fully react to forward guidance are the parts of the curve that end in May 2026,” he added. (Bessent did not respond to requests for comment but, in an appearance on CNBC on Wednesday, he said he was misquoted in the initial Barron’s story about the plan. Still, he added that he thinks Trump should nominate the next Fed chair “very, very early.”) As Trump advisers jockey for economic policy roles, keep an eye on how contenders like Bessent and Hagerty opine on the Fed’s role and whether the next administration should be more hands-on. Powell is certainly paying attention. IT’S FRIDAY — And as always, send tips and news to Sam at ssutton@politico.com.
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