Key market question for 2025: What Donald Trump will do with the Fed (and Jerome Powell)

After the overwhelming victory of the Republican, now the market looks, among other things, What Donald Trump will do with the Federal Reserve (Fed) and, in particular, with its current president Jerome Powell. It is worth remembering that in his first term, the now president-elect assiduously criticized Powell both for having raised interest rates and then for having stayed halfway with the cuts he implemented.

A month ago, Trump was asked whether he would keep Powell for another term during his appearance at the Economic Club of Chicago. Although the then candidate did not respond directly, He made it clear that he would continue trying to influence the Fed. For investors, it is a key issue due to the monetary and economic consequences depending on what Trump decides, which, by the way, will assume the largest share of institutional power since Roosevelt’s second presidency in the ’40s.

It should be noted that the term of the current head of the Fed ends in May 2026 while the Governor in January 2028. It was during the presidency of Barack Obama that Powell was elected to the Fed Board of Governors in 2012 and then Trump himself promoted him to president in 2017. At that time Trump wanted monetary policy to continue and anticipated the end of the Democrat’s term Janet Yellen In 2018, he chose Powell, who had been an official under George Bush (sr.) in the US Treasury in the ’90s.

Can the head of the Fed be removed?: the legal point of view

Experts warn that the law is quite vague about a removal. Under Fed Law, a president can remove a governor, which could include the Fed chair himself, for “just cause” and not for political reasons. But the exegesis of “for cause” gives rise to multiple interpretations. Pursuant to Section 10 of the Fed Act, which deals specifically with the Board of Governors of the Fed System, upon expiration of the term of any designated member of the Fed Board in office on the date of enactment of Banking Act of 1935, the President shall fix the term of office of the successor of such member at not more than fourteen years, as designated by the President at the time of nomination, but in such manner as to provide for the expiration of the term of not more than of a member in any two-year period, and each member shall thereafter hold office for a period of fourteen years from the expiration of the term of his predecessor, unless earlier removed for cause by the President.”

However, according to the latest legal studies, “for cause” implies poor performance of duties, unauthorized disclosure of confidential information, inappropriate personal behavior – sexual harassment for example – or failure to fulfill the duties of the position. But, if that were the case, the issue would be referred to Congress for a ruling. So, this leaves Trump almost handcuffed since even if the Fed chairman does not satisfy him, he has no power to remove him – the same for any other independent agency of the White House. It is worth saying that Until now there is no historical precedent of the dismissal of a Fed president since its creation in 1913. Furthermore, days ago, Powell told the press that he did not believe that the President had the authority to remove him and that if Trump asked him to resign, he would not resign.

The Fed and Trump’s ways

Although the Law is confusing, Trump could resort to other alternatives, explains economist John Plassard of the Swiss bank Mirabaud. On the one hand, play the commitment card, since it is the President who appoints the president of the Fed, waiting for the commitment of loyalty. Although you cannot fire him directly, you can put pressure on him to resign. Curiously, going back to the ’40s, A confrontation between President Truman, successor to the late Roosevelt, and then-Fed Chairman Thomas McCabe forced the central banker to resign.

On the other hand, Trump could redesign the Fed’s integration by gradually replacing some of Powell’s colleagues. In this sense, a governor’s position on the Fed Council will become vacant in early 2026, while the term of the vice president in charge of banking supervision ends in mid-2026, and another vice president will see his term end in 2027. According to According to analysts, these appointments would give the Republican the opportunity to influence the direction of the Fed’s monetary policy and banking regulation, especially with a like-minded Senate that would facilitate the confirmation of candidates who share the same economic ideas.

There is also another path, to which Trump is not at all elusive, and it would be that of use the media and public opinion to criticize the head of the Fed. There are historical examples: the democrat Lyndon Johnson and the republican Richard Nixon They put strong pressure on the Fed due to suspicions of wanting to raise rates; and the most recent, that of the Republican Ronald Reagan which he ordered to the then head of the Fed, Paul Volkernot raising rates before the 1984 presidential election, and the Republican George Bush that charged against Alan Greenspan for its successive rate cuts. Now, who could replace Powell in 2026, the market asks. With Trump’s return to the presidency, several names are emerging as possible candidates to replace Powell.

Trump’s possible candidates for the Fed

There are a half-dozen names floating around Wall Street, Washington and Chicago; among them, Judy Shelton, Christopher Waller, Larry Kudlow, Kevin Warsh, John Williams and Randal Quarles. Who is who?

Judy Sheltonis a controversial economist and former Trump adviser, known for her unorthodox positions and her support for a partial return to the gold standard. She had already been nominated by Trump for a position at the Fed in 2020 but her confirmation fell through. While Christopher Waller who today sits on the Fed Board of Governors, is respected in financial circles and could be a more consensual option, although he shares some favorable opinions on growth. For its part, Larry Kudlowa longtime Trump economic adviser and Fox Business host, is a strong advocate of pro-growth and deregulation policies, and his style fits well with the Republican’s economic approach, but he has no experience at the Fed. Kevin Warsha former Fed governor and influential figure among economic conservatives, had already been proposed for the position in 2017, and could offer a more rigorous and orthodox approach, while being in line with certain pro-growth policies. While John Williamsalthough president of the New York Fed, is generally neutral, but could also be an acceptable choice for a Trump administration due to his strong monetary policy experience. He is considered moderate and pragmatic, which could fit with an approach focused on economic stability.

But also in the dance of names and candidates it usually appears Randal Quarlesformer vice president of supervision at the Fed, who would be the closest to Trump’s approach. Quarles He was appointed by Trump and is known for his favorable vision of more flexible banking regulation, in line with the deregulation policy that the Republican has supported.is also respected in financial circles and is considered to have a more accommodative stance towards the markets.

There is another name that circulated, that of an influential economist with very good knowledge of markets and the global economy, and highly respected in the international financial world, it is Mohamed El-Erianthe former PIMCO, today Allianz. He is the least likely candidate but could be an unexpected but pragmatic choice for Trump. “These names represent a variety of views of Trump, ranging from the traditional approach to more unorthodox ones. Obviously, it is too early to say,” says Plassard, who acknowledges that today there are doubts about whether Trump really wants to fire Powell. “The consequences would be dramatic for investor confidence and, of course, for financial markets. However, we can imagine that if interest rates did not move in the “right” direction, Trump’s anger could increase,” he warns.