The Federal Reserve’s leadership transition took an unusual turn this week as President Trump’s nominee to chair the central bank, Kevin Warsh, prepared to step in while Jerome Powell signaled he would stay behind as a governor for a period “to be determined.” Powell’s decision, he said at a news conference, was driven by events since the White House launched legal action tied to a Fed building renovation and a broader push that Powell described as testing the institution’s independence. The arrangement sets up the first time in almost five decades that a former chair would sit on the central bank’s board at the same time as the chair.
Warsh has told lawmakers he wants to bring “regime change” to the Federal Reserve, but the immediate environment he is inheriting is defined by Powell’s presence and by internal resistance signals inside the Fed itself. A senior advisor to StoneX and a visiting scholar at Duke University, Jon Hilsenrath, said Warsh “is inheriting an institution that will fight for independent, consensus-driven decision-making,” and called that a potential obstacle to any vision of wholesale “regime change.”
Powell acknowledged the unusual governance structure when asked how it would work to have a current and former chair on the board. “I don’t know what the exact specifics of it will be,” Powell said. He added that he would move to the background as a governor, but he also described how his presence could affect near-term rate decisions—particularly because the White House has demanded cuts. Powell said inflation was “misbehaving” and signaled that months could pass before a cut is considered, a position that underpins the rate expectations laid out by economists.
Economist Gregory Daco, chief economist at EY-Parthenon, said, “We no longer anticipate a rate cut in December,” and expects the Fed to stay “on hold through the remainder of the year.” The Fed’s latest statement also showed a measure of internal division: Powell described that he saw policymakers shifting the “center” away from any bias toward cutting rates and that three officials dissented from the statement, according to the reporting. A fourth official, Stephen Miran, voted to cut rates immediately, but he is expected to be replaced by Warsh.
Powell framed his own remaining time at the Fed as an institutional defense rather than a bid to control policy. He said his stay is meant to protect political independence from the White House’s legal actions, calling them “unprecedented in our 113-year history.” Powell added that he worries those attacks are “battering the institution” and putting “at risk the thing that really matters to the public,” which he described as the ability to conduct monetary policy without political factors.
The episode fits into a wider legal and political context involving the Fed’s leadership. The reporting said President Trump has sought to fire Fed governor Lisa Cook over mortgage fraud allegations, which Cook has denied, and that the dispute has become a test case over how much power the White House has to remove Fed governors. It said courts have allowed Cook to remain in her position so far, and that in January the Supreme Court appeared to lean in her favor. Powell’s decision to remain as a governor would also deny Trump an opportunity to appoint a new governor until Powell leaves, with the reporting describing a term end of May 15 and continued service as a governor until January 2028.
On Thursday, Trump told reporters he did not care if Powell remained, saying, “If he stays on, he stays on,” and adding that he wanted to ensure Warsh became head of the Fed. Treasury Secretary Scott Bessent criticized Powell’s decision on Fox Business, describing it as “highly unusual” and “a violation of all Federal Reserve norms.” Powell rejected the characterization that his continued presence injects politics into monetary policy, saying, “I’m literally staying because of the actions that have been taken,” and that his plans to retire predated the last three months’ developments.
Powell said he planned to keep a “low profile” and would not be a “shadow chair.” “That’s just something I would never do,” he said, adding, “There is only ever one chair of the Federal Reserve board. When Kevin Warsh is confirmed and sworn in, he will be that chair.” The reporting said the Senate is likely to confirm Warsh on a narrow, party-line vote the week of May 11, and noted that when Powell was confirmed for a second four-year term in 2022, the vote was 80-19. The reporting also said that the four dissenting votes this week were the most since October 1992, and included an estimate from Stephen Douglass, chief economist at NISA Investment Advisors, that the dissents were not the “welcome mat” Warsh might hope for at his first meeting, with a “hard hat” metaphor tied to the Fed building’s construction status.
While Warsh may arrive with a stated preference for broader change, the near-term picture emerging from Powell’s comments is a Fed that is actively signaling caution on rate cuts and that is already showing disagreement about how openly to communicate that stance. With the transition set against political legal pressure and an unusually overlapping board role, Powell’s decision means Warsh will take over a system still negotiating how to balance independence, inflation concerns, and expectations for policy direction.