Washington — The usually staid leadership transition at the Federal Reserve took an unorthodox turn this week, as outgoing Chair Jerome Powell announced he will step down from the top job but stay on as a governor — a move that will place him alongside President Trump’s nominee, Kevin Warsh, who has promised “regime change” at the central bank. For the first time in almost five decades, a former chair will sit on the board alongside a new one, setting up a potential internal struggle just as the Fed navigates stubborn inflation and mounting political pressure from the White House.
Powell’s decision, disclosed at a news conference Wednesday, came after months of legal attacks from the administration aimed at the Fed’s independence. Trump has sought to fire sitting Fed governor Lisa Cook over mortgage fraud allegations she denies, a case now winding through the courts that could redefine the president’s authority to remove central bank officials. “These legal actions by the administration are unprecedented in our 113-year history,” Powell said. “I worry that these attacks are battering the institution and putting at risk the thing that really matters to the public, which is the ability to conduct monetary policy without taking into consideration political factors.”
By staying on the board, Powell will prevent the president from appointing another governor and thus keep the board’s composition from tilting further toward Trump appointees. Trump already has three picks on the seven-member board, and if Cook were removed, a fourth Trump appointee could give the White House substantial sway over interest-rate decisions. Powell’s term as governor runs until January 2028.
Warsh, who previously served as a Fed governor and is expected to be confirmed by the Senate on a narrow party-line vote the week of May 11, has explicitly called for “regime change” at the central bank. Yet he is set to inherit a board that showed its independence even before his arrival. On Wednesday, four policymakers dissented from the policy statement — the most since October 1992. Three wanted a more explicit shift toward a neutral interest-rate stance, and one, Stephen Miran, voted to cut rates immediately. Miran will be replaced by Warsh on the board, a change that does not guarantee smoother consensus-building.
“A 34-year high in dissents is not exactly the welcome mat Mr. Warsh was hoping to see upon his arrival,” said Stephen Douglass, chief economist at NISA Investment Advisors. “He might want to wear a hard hat at his first meeting.”
The internal dynamics are complicated by Powell’s pledge to keep a “low profile” and not become a “shadow chair.” “There is only ever one chair of the Federal Reserve board. When Kevin Warsh is confirmed and sworn in, he will be that chair,” Powell said. But his physical presence as a former chair, combined with his new outspokenness in defending the institution, could make it harder for Warsh to impose rapid rate cuts that Trump has loudly demanded. Powell said inflation is “misbehaving” and signaled the Fed is likely to hold rates steady through the end of the year. “We no longer anticipate a rate cut in December,” said Gregory Daco, chief economist at EY-Parthenon, “but expect the Fed to stay on hold through the remainder of the year.”
Trump, speaking Thursday, downplayed the development. “If he stays on, he stays on,” the president told reporters. “I just wanted to make sure that Kevin became the head.” Treasury Secretary Scott Bessent, however, blasted Powell’s decision on Fox Business, calling it “highly unusual” and “a violation of all Federal Reserve norms.” Powell rejected that characterization, saying, “I had long planned to be retiring and the things that have happened really in the last three months have left me no choice but to stay.”
The looming confirmation vote for Warsh underscores just how politically charged Fed appointments have become. When Powell was confirmed for a second term in 2022, the Senate vote was 80-19. Warsh’s vote could be nearly along party lines — a mirror of the broader partisan fight over the central bank’s role and independence.
Economists and Fed watchers say the simultaneous presence of a former and current chair will test the institution’s norms. Powell himself acknowledged the unusual nature of the arrangement: “I don’t know what the exact specifics of it will be,” he said. Jon Hilsenrath, a senior advisor to StoneX and visiting scholar at Duke University, said Warsh “is inheriting an institution that will fight for independent, consensus-driven decision-making, a potential obstacle to his vision of wholesale ‘regime change.’”
The Cook case, which the Supreme Court appeared to lean in her favor in January, adds another layer of uncertainty. Should the White House succeed in removing her, Trump would gain a fourth appointee and a stronger hand in monetary policy. For now, the board remains split, with the dissenting votes underscoring that the Fed’s tradition of consensus is under strain — and that Warsh’s arrival may not mend it.