Trump's Fed Feud With Powell Threatens to Derail Warsh Nomination and Monetary Policy Agenda
(Bloomberg) -- President Donald Trump's campaign to install a more pliant Federal Reserve chair is hitting an unexpected roadblock: his own Justice Department's unprecedented criminal investigation into the sitting chair, Jerome Powell.
The probe, centered on building renovation disclosures, has so inflamed tensions that even some Republican allies are balking. Senator Thom Tillis (R-N.C.), a pivotal swing vote on the Senate Banking Committee, has vowed to block all Fed nominations—including Trump's pick, former governor Kevin Warsh—until the investigation is closed.
"This isn't about policy disagreements; it's about preserving the institution's independence from political weaponization," Tillis told reporters last week, labeling the DOJ's actions "a bogus intimidation tactic." His stance threatens to leave the Fed in limbo when Powell's term as chair expires in mid-May.
The impasse presents Trump with a stark choice: de-escalate the legal assault on Powell to smooth Warsh's path, or dig in and risk a protracted vacancy at the helm of the world's most powerful central bank. For a president trailing in polls and eager for rate cuts to boost the economy before November, the stakes are high.
Administration officials publicly insist on a swift confirmation. "We need closure on the Powell matter quickly," Senate Majority Leader John Thune summarized. Yet behind the scenes, there is little indication the White House is directing the Justice Department to stand down. "I don't think the timing of a nomination is a controlling factor in any investigation," Deputy Attorney General Todd Blanche said recently.
The constitutional and procedural questions are murky. If Warsh isn't confirmed by May 15, authority to designate an interim chair likely falls to either the White House or the Fed's Board of Governors—a gray area with no clear modern precedent. Such uncertainty is the last thing markets or the administration want.
Investors have long been wary of Trump's pressure on the Fed, viewing it as a threat to the central bank's operational independence. Powell's January revelation of grand jury subpoenas marked a dramatic escalation, prompting a forceful public defense from the chair and widening the rift within the GOP.
"Unless you explicitly tell me the criminal investigation is closed, it's very hard to get comfort that a prosecutor won't change their mind," said Paul Tuchmann, a former federal prosecutor. This legal cloud, experts note, may not dissipate even if the administration quietly backs off.
With Tillis gaining support from figures like Senator Lisa Murkowski and Senate Democratic Leader Chuck Schumer calling for Warsh's nomination to be held until Trump's "vendetta" ends, the Banking Committee has the votes to stall. The president, however, remains defiant, recently calling Powell a "crook" and suggesting he might wait until Tillis retires in 2027 to get his nominee through.
That wait-and-see approach could cost Trump his immediate policy goals. A delayed confirmation postpones the day a Warsh-led Fed might begin cutting rates—a move the president believes is crucial for economic momentum ahead of the election.
Reader Reactions:
"Finally, someone in the GOP is showing a spine. Tillis is right to draw a line. Using the DOJ to settle scores with the Fed sets a terrifying precedent for any independent agency." – Michael R. Chen, political science professor, Georgetown University.
"This is pure political theater delaying necessary monetary stimulus. The economy is struggling, and Tillis is holding the Fed hostage over a minor administrative issue. Confirm Warsh now and let him do his job." – David P. Forsythe, chief strategist, Granite Point Capital.
"Trump's obsession with punishing Powell is backfiring spectacularly. He's uniting opposition and jeopardizing his own agenda. It's a self-inflicted wound that shows his inability to prioritize governing over grudges." – Anya Sharma, columnist, The Atlantic Chronicle.
"The real scandal is the Fed's lack of transparency, not the investigation. Powell should have been more forthcoming. Tillis is protecting the establishment, not the principle." – Rick Tolliver, host of "Hard Money" podcast.
--With assistance from Chris Strohm, Jarrell Dillard and Skylar Woodhouse.
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