Powell Wants to Be "Acting Chairman"? Trump Still Has a 1978 "Trump Card" in His Hand

Source: Jin10

The ongoing legal deadlock between the Trump administration and the Federal Reserve is increasing the possibility that the next Fed chair may not receive Senate confirmation before Chairman Powell’s term expires in May.

Last week, Powell responded to speculation about what might happen: he declared his intention to continue serving as chair and cited legal and historical precedents as support.

At his March 18 press conference, Powell said: “If, at the end of my term as Chair, my successor has not been confirmed, I will serve as Acting Chair until they are confirmed.” He used the Latin term “pro tempore,” meaning temporary title. “This is required by law. We have done this on multiple occasions—including in my own case—and we will do so again.”

However, the law does not directly address this specific situation. Additionally, historical precedents do not fully align with the current circumstances, as Trump has explicitly expressed a desire for Powell to step down.

The Federal Reserve Act— which established the central bank and regulates its operations— does specify that if the Chair is absent, the Vice Chair shall preside over meetings. But it does not clearly specify what happens when the Chair’s term ends and a successor has not been confirmed. Trump has nominated former Fed Governor Kevin Warsh to succeed Powell, but his nomination is currently blocked due to opposition from the Senate regarding Justice Department investigations into Powell.

Legal Basis

Former Fed General Counsel Scott Alvarez stated that Powell’s position can be supported by citing two parts of the law.

First, Section 10 of the law states that when a Fed Governor’s term expires, “they shall continue to serve until their successor is appointed and qualified.”

Recent example: Governor Stephen Miran’s term expired in January. Warsh has been nominated to fill his seat, but since Warsh has not yet been confirmed, Miran continues to serve. Alvarez said that in the case of the Chair’s term expiring, the Fed can apply the same rule.

Alvarez said: “Therefore, the current Chair can continue to serve, filling the position until a new Chair is confirmed.”

Alvarez also pointed to Section 11, which grants the Federal Reserve Board the authority to delegate any of its functions— except those related to rulemaking or monetary and credit policy— to any of its members.

Alvarez explained that by appointing Powell as Acting Chair, the Board is essentially authorizing him to perform the functions of Chair, such as reviewing budgets and serving as the Fed’s chief spokesperson.

He said: “We believe that everything the Chair does is actually authorized by the Board. The Board will vote to delegate all these responsibilities to him.”

Precedent

Columbia Law Professor Kathryn Judge, who studies the Fed, said the Federal Reserve Act does not explicitly specify what happens if Warsh is still waiting for confirmation after May 15.

However, she noted that Powell can also look to how the central bank has handled gaps between Chair terms in the past.

She said: “When the law is not clear, following established precedent is the safest and most prudent approach for the Fed.”

As Powell has hinted, he has previously used the title of Acting Chair. In 2022, while awaiting Senate confirmation after being nominated by Biden for a second term, Powell served as Acting Chair for about three months. In 1996, during Clinton’s presidency, Alan Greenspan also served as Acting Chair for over three months between terms.

But there is a key difference this time: in previous cases, the President nominated the former Chair to serve another four-year term. This time, Trump has shown clear opposition to Powell and has repeatedly expressed a desire for him to step down.

Some Fed observers also referenced a 1978 memo from the Office of Legal Counsel at the Justice Department. The memo suggested that if the Chair position is vacant, the President has the authority to appoint an “acting Chair” from among the Fed Governors. Some interpret this as at least providing a legal basis for Trump’s claim that he can nominate a temporary appointee of his choosing.

Barclays US Public Policy Senior Research Analyst Michael McLean wrote in a report to clients: “Previously, the choice of Acting Chair has never been questioned because, unlike today, the White House wanted the current Chair to remain in office.”

McLean added: “We expect the government may challenge Powell’s appointment as Acting Chair. This could lead to disputes over Fed leadership, create legal and institutional uncertainty, and potentially cause market volatility.”

However, Alvarez, the former Fed General Counsel, noted that the 1978 memo was issued before a key amendment to the Federal Reserve Act took effect. He explained that the amendment requires that the President’s nominee for Chair must be confirmed by the Senate, limiting the applicability of that memo today.

The White House responded to Powell’s comments by reaffirming support for Warsh and said it is working closely with Congress to push for his confirmation.

U.S. Treasury Secretary Yellen stated that Powell remaining at the Fed after his term ends would break with historical precedent, but did not address whether Powell would serve as Acting Chair under these circumstances.

Justice Department Investigation

The irony of the current situation is that it was the Trump administration’s pressure on the Fed that delayed Warsh’s confirmation process and prompted Powell to consider remaining at the central bank.

Warsh’s nomination has been blocked by Republican Senator Thom Tillis, who has vowed to hold it up until the Justice Department’s investigation into Powell and the Fed’s $2.5 billion headquarters renovation is resolved. Tillis considers the investigation politically motivated.

Earlier this month, a federal judge dismissed a subpoena issued by the Justice Department in this matter, but U.S. Prosecutor Jeanine Pirro has vowed to appeal, meaning the situation could drag on for months.

Powell has stated he will not leave the Fed until the investigation is “completed transparently and thoroughly.” Besides his term as Chair, Powell also holds a seat on the Fed Board of Governors, which allows him to remain at the Fed until early 2028.