Unexpected changes occur on the eve of the nomination hearing: Republican senators switch sides, Powell's appointment as Fed chair is blocked, and Powell may be forced to stay in office.

The nominee for the next Federal Reserve Chair by U.S. President Trump, Kevin Warsh, is set to attend the nomination confirmation hearing held by the U.S. Senate Banking Committee on April 21st. Typically, while the incoming Federal Reserve Chair undergoes a thorough review, the transition of power is smooth and uncontroversial. However, this time the situation is different. Currently, Warsh's confirmation as Federal Reserve Chair has actually been blocked, not by opposition from the Democratic Party, but by Republican Thom Tillis of North Carolina. He is dissatisfied with Trump's handling of Powell and the Federal Reserve, stating that he will not support any nominee until the Justice Department resolves the investigation into Powell. This unprecedented situation ironically suggests that Trump's persistence in attacking Powell may actually prolong his tenure as Federal Reserve Chair. Why is Tillis so dissatisfied? The Federal Reserve is supposed to operate without political pressure or White House interference. However, since his second term, Trump has been urging Powell to significantly lower interest rates. Although the Federal Reserve has cut rates to protect the labor market, the cuts have not been enough to satisfy Trump. In this context, Trump attempted to dismiss another Federal Reserve board member, Lisa Cook, over allegations of mortgage fraud, but she denied these accusations. Trump's Justice Department also launched a criminal investigation into Powell's testimony before Congress in 2025 regarding the renovation project at the Federal Reserve's Washington headquarters and whether he lied about the project. After silently enduring most of Trump's attacks, Powell spoke out after the Justice Department issued a subpoena to the Federal Reserve, stating that the entire investigation was motivated by Trump's dissatisfaction with interest rates. The courts have agreed with this view so far, rejecting the subpoena. Some Republican lawmakers believe that Powell did not violate any laws and that the case should be dismissed. However, the prosecutor in charge, with Trump's support, has vowed to appeal and continue the investigation. Trump has also stated that he has no intention of abandoning the Justice Department's investigation into Powell and has reiterated the need to investigate issues related to the Federal Reserve building project. The Justice Department's sudden inspection of the Federal Reserve building construction site last week also indicates that the investigation into Powell has not been abandoned. Tillis has stated that while he supports Warsh's nomination, he will not allow the confirmation process to proceed unless the Justice Department's investigation is dropped. The slim Republican majority in the Senate means they cannot overcome Tillis's refusal to confirm Warsh in the Banking Committee. Can Trump prevent Powell from serving as Chair temporarily or even dismiss Powell? If neither side backs down, the position of Federal Reserve Chair will be vacant on May 16. According to the Federal Reserve Act, when the Chair is absent, the Vice Chair of the Federal Reserve Board presides over board meetings. However, many legal experts believe that this refers to the Chair's physical absence, not a vacant position. In this case, Powell has stated that he intends to continue leading the board as Acting Chair. Although Powell's four-year term as Chair ends on May 15, he still holds a seat on the Federal Reserve Board until the end of his 14-year term in January 2028. Therefore, Powell can serve on the board for two more years. In practice, when a Chair's term ends, they traditionally resign from the board and leave the institution entirely. However, in March, Powell stated that he would remain on the board until the Justice Department's investigation is resolved "in a transparent and final manner." This provides him with the opportunity to continue serving as Acting Chair. Therefore, Powell may continue to hold another key position - Chair of the Federal Open Market Committee (FOMC), which is responsible for setting interest rates. This means that the Trump administration's continued push for the investigation may not only delay Warsh's confirmation but also allow Powell to retain significant control over monetary policy. It is not entirely clear whether Trump can prevent Powell from retaining power. Powell can invoke two provisions of the Federal Reserve Act to support his claim. First, the law states that when the term of a Federal Reserve Board member expires, the member "shall continue in office until their successor is appointed and qualified." Some legal experts believe the same principle applies to the Chair. Second, the law authorizes the Federal Reserve Board to delegate any of its powers to one of its members. Therefore, the Board can vote to appoint Powell as Acting Chair, giving him all the powers usually granted to the Chair. Given his public statements, Powell appears to have likely obtained the support of a majority of the Board members to assert his claim to the position of Acting Chair if Warsh is not confirmed in time. Trump can invoke a legal opinion prepared by the Justice Department in 1978 for the potential interruption of a Federal Reserve Chair transition to claim the authority to appoint another Board member as the Acting Chair. In that case, President Carter designated outgoing Chair Arthur Burns as the "Acting Chair" until his successor was confirmed and sworn in. However, all of this occurred before a law was amended to require separate Senate confirmation for Federal Reserve Chair nominees. Before January 1, 1979, the President only needed to elevate an already confirmed Board member to fill the Chair vacancy, so appointing a Board member as Acting Chair fell entirely within the President's legal authority. The added confirmation requirement seems to block this avenue. As for whether Trump can dismiss Powell, in fact, Trump has openly discussed removing Powell and threatened on April 15 to take action if Powell did not leave the Federal Reserve "on time." The Federal Reserve Act explicitly grants the President the power to remove any Board member, but only for "cause." Historically, this has been understood to involve misconduct or incompetence during a member's term, and the courts have long set the bar quite high. The current Supreme Court acknowledges greater presidential power over agency heads than previous courts, but also notes that the Federal Reserve is "a structurally unique quasi-private entity." In the building renovation investigation, a judge has criticized the Justice Department for failing to provide any reasons for the subpoena, let alone criminal charges. And in the case involving Cook, the Supreme Court once again indicated its reluctance to allow the President to easily dismiss Federal Reserve Board members - although the Court has not yet ruled on the merits of the case or the lower court's decision allowing Cook to remain during the case. What does all of this mean for monetary policy? Unless the Justice Department investigation is dropped, this means that Powell may not only continue to preside over the Federal Reserve Board but also continue to lead the FOMC responsible for setting interest rates. The FOMC has 19 members, including all seven Federal Reserve Board members and all 12 regional Federal Reserve Bank Presidents. Board members and five of the Presidents vote on interest rates and other policy issues at eight meetings each year. Voters also elect the Chair of the FOMC at the first meeting each year, although this is largely a formality as they traditionally vote to elect the Chair of the Federal Reserve Board who also serves as Chair of the FOMC. In January of this year, the FOMC elected Powell as Chair for the full year of 2026. In an interview, the Vice Chair of the FOMC and President of the New York Fed, Williams, made two points clear: first, when the new Board Chair is confirmed by the Senate, the FOMC will timely elect that person as the new Chair of the FOMC. But if this does not happen before the FOMC's meeting on June 16-17 - the first meeting after Powell's term as Chair ends - they will maintain the status quo. In other words, Powell will continue to serve as Chair of the FOMC. The Chair of the FOMC does not have dictatorial powers. They have only one vote out of 12. However, they play a central role in establishing and shaping the committee's consensus views on monetary policy. The Chair is also the only member of the FOMC who is authorized to speak on behalf of the entire committee. This means that if Warsh is not confirmed in time, it will be Powell who steps onto the podium to lead the press conference after the meeting on June 17. When will this situation be resolved? Trump can stop the Justice Department's investigation at any time to end the standoff with Powell. In that case, Warsh is likely to receive Senate confirmation with a basic party-line vote - although he may receive some support from Democrats. If Trump does not compromise, Tillis's term will end in January next year. The next Senate will then have the opportunity to confirm him after Warsh is renominated. However, the risk of Democrats controlling the Senate and then blocking any Federal Reserve nominee from Trump remains. This could permanently prevent Trump from gaining new influence over monetary policy.