The Decision to Replace Fed Chair Jerome Powell Is in Final Stretch

Trump wants a loyalist. Senators want independence. Backlash in progress.

Powell Investigation Upends Final Stretch of Fed Chair Contest

The Wall Street Journal reports Powell Investigation Upends Final Stretch of Fed Chair Contest

The criminal investigation into Federal Reserve Chair Jerome Powell threatens to upend the contest over whom President Trump will choose to succeed him as it enters its final stretch.

The episode is creating new obstacles on Capitol Hill and raising hard questions about whether any nominee can be seen as independent—tension that was always present but is now much harder to ignore. Trump has made clear he prizes loyalty in his pick, but the Justice Department probe—which Powell said was part of a pressure campaign to get the Fed to lower interest rates—threatens to make that quality a liability.

The backlash on Capitol Hill could force that pick to walk a tightrope in any confirmation process this spring. The nominee would have to avoid upsetting Trump with statements that question his efforts to challenge the Fed without provoking concerns from lawmakers or market participants that they are too close to Trump to be credible.

“Trump is making it very difficult by saying he refuses to appoint anyone who doesn’t agree with him and is not going to do what he wants,” said Janet Yellen, the former Fed chair and Treasury secretary. “So you start with that, which undermines a person’s credibility.”

In a sign of some lawmakers’ unease, two Republican senators—Thom Tillis of North Carolina and Lisa Murkowski of Alaska—said this week they won’t vote for any nominee until the probe is resolved.

“I wouldn’t consider my mother for the post under the current conditions, because we’ve got to resolve this matter,” Tillis said earlier this week. “It’s foundational to making decisions about the board going forward.”

Tillis, who sits on the Senate Banking Committee that oversees Fed nominations, has become a vocal, regular critic of the Trump administration. In this case, his complaints are more than just talk: He could hold up the nomination with backing from Democrats.

Last week, Treasury Secretary Scott Bessent said Trump would soon interview one last finalist, Rick Rieder, a BlackRock executive. Rieder was spotted at a White House event on Thursday honoring the Florida Panthers’ Stanley Cup championship.

But the battle has always been between the two Kevins: former Fed governor Kevin Warsh, and the director of the White House National Economic Council, Kevin Hassett.

Hassett’s close relationship with Trump made him a leading contender for the job. Now, it might be a liability.

Hassett demonstrated the difficulty of his position this week. He began one interview on Monday by saying, “I hope everything turns out OK for Jay,” but then he attempted a defense of the investigation as a legitimate exercise in government oversight—putting him at odds with lawmakers who have called it a political hit job.

“If I’m here sitting here in the White House and somebody says, ‘Hey, Justice Department wants to look at all your emails or look at what you’ve been doing on this or that,’ then I would welcome the opportunity to show them that I’m fine,” Hassett said on CNBC.

His comments prompted a backlash from economists and other analysts who said they were inappropriate for someone looking to lead the central bank. “It was sad but unsurprising to see him accepting this as an aboveboard, legitimate, independent inquiry,” said Jason Furman, a former economic adviser to President Barack Obama. Furman helped organize a letter supporting Hassett’s 2017 Senate confirmation as chair of the White House Council of Economic Advisers for Trump’s first term.

Some Trump allies who have supported both Hassett and Warsh for the job said any escalation in the criminal investigation of Powell could further tarnish Hassett’s standing with the Senate and his future Fed colleagues given his White House role. These people said that could give Warsh an edge by leaving him in relatively better standing with lawmakers and central bank insiders.

Trump was impressed by Warsh in an interview last month, telling associates over the holidays that he was struck by his acumen and good looks, according to people familiar with the matter.

There is a final practical consideration that has grown more significant since Sunday. The Trump administration has been focused on ensuring Powell departs entirely when he steps down as chair. While Powell’s chairmanship expires in May, his term as a governor runs until January 2028.

The investigation raises the prospect that Powell won’t leave if the administration tries to use it as leverage to compel his resignation. But analysts say Powell is more likely to vacate his seat if Waller is the pick—a respected colleague with whom he has worked closely.

Polymarket Odds

My gosh. Warsh has soared into the lead. He’s up from a 7 percent chance on December 3 to 44 percent now.

Hassett was once at 85 percent, now down to 36 percent.

Betters failed to note that Warsh is much better looking. Well, in the end, Trump wants control. So which will it be?

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Addendum Warsh Then and Now

June 28, 2010, Calculated Risk: Fed’s Warsh: Reluctant to do more

In my view, any judgment to expand the balance sheet further should be subject to strict scrutiny. I would want to be convinced that the incremental macroeconomic benefits outweighed any costs owing to erosion of market functioning, perceptions of monetizing indebtedness, crowding-out of private buyers, or loss of central bank credibility. The Fed’s institutional credibility is its most valuable asset, far more consequential to macroeconomic performance than its holdings of long-term Treasury securities or agency securities. That credibility could be meaningfully undermined if we were to take actions that were unlikely to yield clear and significant benefits.

I definitely agree with Warsh on this point:

“Subprime mortgages were not at the core of the global crisis; they were only indicative of the dramatic mispricing of virtually every asset everywhere in the world.”

Tanta said it better a few years ago: “We’re all subprime now!”

Kevin Warsh Starts His Campaign to Replace Jerome Powell as Fed Chair

November 16, 2025, Mish: Kevin Warsh Starts His Campaign to Replace Jerome Powell as Fed Chair

Warsh throws his hat into the ring with lavish praise of Trump.

There’s more than a bit of irony in Warsh’s statement “Inflation is caused when government spends too much and prints too much.”

Government is spending to much. But what has Trump done but increase that?

Warsh Pledges to Be a Trump Parrot

Warsh ignores the possibility that all of this may cause stagflation. Well, maybe he’s right. But he doesn’t know, nor does Powell.

And he ignores the huge possibility that AI spending is in a massive bubble.

The most galling thing is Warsh’s lavish praise of Trump while ignoring the massive deficit spending of this administration, while moaning inflation is caused by too much government spending.

If the market agreed with Warsh, long-term yields would be crashing. Instead, the 30-year long-bond yield is near a 15-year high.

Does Warsh not understand market forces? Does he not understand the Fed does not control long-term rates. Or is Warsh proposing more QE to control long-term rates?

The only logical answers are: 1) Warsh is too stupid to be Fed chair or 2) Warsh is too much a Trump parrot to be Fed chair.

By the way, Kevin Warsh is now up to 60 percent on Polymarket.