How do you change regimes when the head of the old one isn't leaving? That will be the question facing Federal Reserve chair nominee Kevin Warsh next month once confirmed by the Senate, now that outgoing Chair Jerome Powell has confirmed he will stick around indefinitely as a voting member of the Fed's Board of Governors. Powell's decision to stay has little precedent in Fed history, but it may be less disruptive to Warsh's plans than it might otherwise seem. Powell said at a Wednesday press conference that he has no desire to be a "shadow chair" and that his plans for an extended tenure at the Fed are aimed squarely outside the infamously crumbling walls of the Marriner S. Eccles headquarters building. Powell's rejection of the shadow chair idea is fitting given that it was an idea floated specifically to undermine him. Treasury Scott Bessent proposed the plan for a shadow Fed chair in October 2024 when he was still a private citizen. Now-President Donald Trump was fed up with Powell before he'd even won election that year, so Bessent proposed designating a replacement far in advance. "Based on the concept of forward guidance, no one is really going to care what Jerome Powell has to say anymore," Bessent said. Trump still cares about Powell, but Powell went out of his way Wednesday to suggest that Warsh needn't be overly worried about having an ex-chair hanging around. "There's only ever one chair," Powell said. Like Warsh, Powell was appointed by Trump before the president soured on him. "I'm not looking to be, you know, a high-profile dissident or anything like that," he added. He is looking instead to ward off the threats he sees to the Fed's independence from the Trump administration's legal attacks on the independent central bank. Congress gave the Fed the power to set interest rates without thinking about politics, and Powell plans to keep it that way. Otherwise politicians of all stripes will be tempted to juice the economy through lower rates and risk surging inflation. Powell wants to see a definitive resolution to the criminal investigation brought and then dropped by U.S. Attorney for the District of Columbia Jeanine Pirro. She has said she plans to appeal judge's decision to quash her subpoenas. Sen. Thom Tillis, R-N.C., who was key in brokering an understanding between Pirro and Powell, said Sunday he believed Powell would likely stay on until the appeal was resolved. That could take months. Powell's decision to stay at the Fed essentially brackets those Trump-related fights for Warsh. Powell effectively becomes the board's designee for Trump fights, while Warsh goes about the business of putting his stamp on the Fed. That could mean even nixing the kind of press conference Powell was speaking at. Warsh in his nomination hearing declined to commit to holding press conferences on the same schedule as Powell. The outgoing chair acknowledged it would essentially be up to Warsh. "I think our communications are fine, but looking at doing it in a different, better way is the most natural thing in the world," Powell said. Changing communications could extend to perhaps the most notable policy development out of Wednesday's meeting. Three Fed officials dissented from the Fed's decision saying they objected to an "easing bias" in the policy statement the Fed issued. Those officials agreed with the overall decision to keep interest rates flat but didn't want to signal that the Fed was still seriously considering cutting interest rates in light of the risk of inflation from the Iran war. Warsh has pledged to quickly cut interest rates. Fed forward guidance on the rocks Those comments are "a form of forward guidance," Powell said — a way to let markets know what's coming down the road. Warsh opposes that practice. "I do not generally believe the Federal Reserve should offer forward guidance as currently practiced," he wrote in response to questions to Senate Democrats, which they released Tuesday. Warsh in those written comments also said he wants to "reform" the Fed's 12 regional reserve banks. He said he was open, for instance, to residency requirements that would ensure the bank presidents come from the districts they represent. Powell said he is open to changes at the reserve banks, too. "There's a back and forth on that," he said. The only area Powell would draw the line on would be wholesale firing the regional Fed presidents. Allies of the president have floated that idea, which would be within the board's power but would be unprecedented. A rotating group of those presidents vote on monetary policy, so replacing them with loyalists could be a backdoor way of handing power to the administration. "That would be the beginning of the end of the Fed's ability to make monetary policy independently," Powell said. But Warsh has shown no sign he is considering the plan. He told Sen. Lisa Blunt Rochester, D.-Del., at his confirmation hearing last week that overthrowing the Fed presidents wasn't in his plans for regime change. He means "policy regime change," he said. Interest rate clashes could come That means the only major challenge for Warsh, as far as Powell is concerned, will be driving consensus within the Fed for where to set interest rates. Wednesday's dissents suggest that won't be easy. But Powell, whom Warsh has described as a failed chair who chose inflation, went out of his way to say Warsh is up to the task. The chair's job is to "create consensus" among the Fed's voters and to "be inside their thinking," Powell said. Warsh "has the capabilities, skills to be very good at that," Powell said.
