The final suspense in the Federal Reserve’s “handover”: Powell’s departure or stay concerns the Fed’s control

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A single decision by Powell will determine whether Trump can take control of the Federal Reserve.

With the Justice Department announcing the termination of its criminal investigation into Fed Chairman Powell, the Senate confirmation process for his successor, Kevin Warsh, is back on track. However, the ultimate direction of the Fed’s power structure still hangs on a yet unresolved question: Will Powell, after stepping down as chairman on May 15, continue to serve as a member of the Fed Board until his term expires in January 2028? This choice will directly determine whether Trump can gain a working majority on the seven-member Board, profoundly affecting the Federal Reserve’s institutional independence.

According to a Wall Street Journal report on the 27th, Powell’s departure or stay affects not just his personal career, but the power balance on the Fed Board. During his first term, Trump appointed Michelle Bowman and Christopher Waller, both current board members, and following Warsh’s confirmation will occupy a third seat. If Powell leaves at the same time, Trump will hold four votes on the seven-member Board, achieving a working majority.

Last Friday, the Justice Department announced it was suspending the criminal investigation against Powell. Previously, Republican Senator Thom Tillis, a key obstacle in Warsh’s nomination process, said Sunday he had received assurance from the Justice Department that the investigation had in fact concluded, and immediately announced his support for Warsh’s nomination, clearing the way for Senate confirmation before May 15.

However, acting Attorney General Todd Blanche made ambiguous remarks on the same TV program, suggesting the investigation was still active, and noted that the Fed’s Inspector General was conducting an audit on construction costs. This statement raises controversy over whether the threshold Powell himself set for ‘thorough termination of the investigation’ has actually been met.

Criminal Investigation Clouds Remain, Powell’s Criteria Unclear

In his March press conference, Powell stated clearly that his minimum condition for staying was that the criminal investigation must be “thoroughly terminated, with transparency and finality”. Whether the Justice Department’s latest statement meets this standard remains unknown.

Tillis pointed out that the Justice Department is still pursuing an appeal against a federal judge’s March ruling, but it is limited to retaining subpoena power and does not involve restarting the Fed investigation. He said on NBC’s “Meet the Press” that Powell may wish to wait until the appeal process concludes before making a decision, which could be a long process.

Acting Attorney General Blanche’s remarks further added to the uncertainty. He mentioned that the Fed’s Inspector General is conducting an audit of construction costs—the audit was initiated at Powell’s own request last year—and said “will depend on the audit results.” Kurt Lewis, a former senior adviser to Powell now at Piper Sandler, noted in his client report Monday that Blanche’s wording suggests that even if Tillis believes the investigation is over, Powell’s own criteria may not yet be met, thus increasing the likelihood that Powell will remain on the Board at least until the investigation is fully resolved.

A Dilemma: Personal Will versus Institutional Responsibility

People familiar with Powell say that after nearly 14 years at the Fed and eight years as chairman, he is eager to return to private life. The problem is, voluntarily leaving under continuing pressure from the Trump administration could objectively endorse this pressure campaign—precisely what Powell has tried to resist over the past year.

Jon Faust, Powell’s former senior adviser, said earlier this year that Powell would only stay “extremely reluctantly and with deep disappointment,” and only if he truly believed his seat was the key to preventing the government from compromising the Fed’s independence. “Staying looks like a political act, but what good could it do?” Faust said.

Jared Bernstein, former chairman of Biden’s Council of Economic Advisers, holds the opposite view. He believes that after legal confirmation, Warsh has the right to make his mark on the Fed, “having both the new CEO and former CEO sit on the Federal Open Market Committee at the same time is a bad institutional precedent.” He also noted that the responsibility to protect the Fed’s independence shouldn’t fall solely on Powell, “Powell has the right to continue his own life.”

Board Seat Math: The True Battlefield for Independence

The debate over Powell’s departure ultimately points to a key arithmetic question.

Currently, Trump’s first-term appointees Bowman and Waller occupy two board seats, and after Warsh’s confirmation, this will rise to three. If Powell leaves, Trump will gain a fourth seat, forming a working majority on the seven-member Board.

Former Fed senior economist David Wilcox, now at Bloomberg Economics and the Peterson Institute for International Economics, cautions that the danger is not the gradual erosion of independence, but that once the president gains a compliant majority, he could take aggressive measures to dismantle the Fed’s traditional structure, including attempts to remove regional Fed presidents. He notes that if Powell stays, the arithmetic becomes more difficult, and could strengthen the position of other board members whose terms extend past 2028.

It’s noteworthy that Powell is the only board member to be appointed by presidents from both parties—Obama named him as a board member, Trump promoted him to chairman in his first term, and Biden reappointed him for another term. Wilcox says that if Powell leaves, his successor could accelerate the trend toward partisan division in board votes—a trend already spreading in other multi-member regulatory agencies in Washington.

Modern precedents of Fed chairmen staying on the Board after stepping down are extremely rare. The only exception is Marriner Eccles—chairman from 1934 to 1948—who, after stepping down, remained on the Board for three years at President Truman’s request, during which he led a direct confrontation with the Truman administration over interest rate policy, a standoff that ultimately established the modern foundation of Fed independence. It is historically significant that Powell’s criminal investigation was triggered by the Fed headquarters renovation project, which is named after Eccles.

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