Bessent suggests Powell should leave Federal Reserve board in May

[WASHINGTON] US Treasury Secretary Scott Bessent suggested that Federal Reserve chair Jerome Powell should step down from the central bank’s board when his term as chair is up in May 2026.

“Traditionally, the Fed chair also steps down as a governor,” Bessent said on Tuesday (Jul 15). “There’s been a lot of talk of a shadow Fed chair causing confusion in advance of his or her nomination. And I can tell you, I think it’d be very confusing for the market for a former Fed chair to stay on also.”

Powell’s term as a Fed governor does not end until January 2028, leaving it possible for him to remain at the central bank, and to participate in monetary policymaking, even after his tenure as the chair comes up next May. Powell has repeatedly declined to answer questions on whether he might stay on as a governor. That reticence has complicated the decision-making for US President Donald Trump and his aides as they look to revamp Fed leadership next year.

“There’s a formal process that’s already starting” with regard to identifying the nominee to become the next Fed chair, Bessent also said. “There are a lot of good candidates inside and outside the Federal Reserve.”

Asked whether Trump has asked Bessent himself to serve as Fed chair, the Treasury chief said: “I am part of the decision-making process.” He noted that “it’s President Trump’s decision, and it will move at his speed”.

Inflation trend

Treasuries dropped after Bessent’s remarks, with two-year yields hitting a session high of 3.93 per cent. The Bloomberg Dollar Spot Index pared losses and was little changed as at 8.25 am in New York.

Unless Powell makes clear he will vacate his board position, Trump has one scheduled opening to fill next year, with governor Adriana Kugler reaching the end of her term in January. Bessent said last month that one potential timeline would have a Fed chair name emerge in October or November, ahead of that January opening on the board.

Trump has made clear that he wants Powell’s successor to be someone who favours lowering interest rates. He has repeatedly blasted the Fed chair for standing fast on rates since he took office, after lowering them last year. Central bank policymakers have said they are worried the president’s tariff hikes will push up inflation, and prefer to gather more information before opting to resume rate reductions.

The latest reading on inflation is due on Tuesday morning, with the June consumer price index. Bessent said that he had not looked at the release in advance of his appearance on Bloomberg, but said: “I wouldn’t put too much emphasis on one number.” He pointed to the recent trend of inflation numbers that show fears about a “substantial price level rise” have not been substantiated.

Building flap

“They have had some big forecasting errors,” with regard to the economy, Bessent said of the Fed. “And this may be one” as well, he added. Even so, Bessent highlighted that Trump has said “numerous times he is not going to fire Jay Powell”.

Among the likely contenders to succeed Powell as chair are former Fed governor Kevin Warsh and Trump’s current National Economic Council director, Kevin Hassett, along with Bessent himself. Investors have also focused on current Fed governor Christopher Waller, who Trump appointed to the board in his first term and who has been open to the idea of lowering rates as soon as this month.

Pressure on Powell has risen further this month, with a number of Republicans attacking him over cost overruns in the refurbishment of two historic buildings controlled by the Fed. Some have used the issue to argue it gives the president legal cause for dismissing the Fed chief.

Hassett, when asked in an ABC News interview Sunday whether the president has the authority to fire the Fed chair, said: “That’s a thing that’s being looked into. But certainly, if there’s cause, he does.”

Bessent, asked about Hassett’s remarks, pointed again to Trump’s comments that he was not looking to fire Powell. BLOOMBERG