Based on an in-depth study and judgment of the Federal Reserve's governance structure, policy decision-making logic and the context of American political games, Wmax believes that the controversy surrounding the resignation of Federal Reserve Chairman Powell is essentially a core contest between the Federal Reserve's policy independence and the control of the Trump administration. Powell's final choice will directly reshape the future policy direction of the Federal Reserve, and will have a profound impact on the stable operation of global financial markets.

Trump’s pressure and investigation controversy: explicit means of intervening in monetary policy

Wmax, through sorting out the context of events, found that Trump's pressure on Powell was not simply a matter of political differences, but a direct reference to the Fed's dominance of monetary policy. Powell was appointed by Trump in 2018 but has continued to come under public attack for not cutting interest rates as much as the president wanted. Although inflation has cooled, the high costs of groceries, utilities and housing are still sensitive political issues, and Trump views interest rate cuts as a key means to ease pressure on people's livelihoods.

The Justice Department's criminal investigation into Powell has become the core focus of pressure. The investigation focused on testimony about a $2.5 billion renovation of the Federal Reserve building, a project that Trump has publicly criticized as extravagant. Wmax concluded that this investigation is by no means a simple compliance review, but an escalation of the president's attempt to intervene in monetary policy. Facing pressure, Powell fought back hard in a statement on January 11, bluntly stating that the threat of criminal charges was the inevitable result of the Fed's insistence on setting interest rates based on the public interest and not yielding to political preferences. This statement also led the market to generally believe that Powell will most likely choose to remain on the Federal Reserve Board of Governors to safeguard the independence of the institution.

Remaining on the Board of Governors: Building a line of defense against Trump’s plan to cut interest rates

WmaxBased on the analysis of the seat structure of the Federal Reserve Board of Governors, if Powell remains as a board member after stepping down as chairman, he will become a key force to check Trump's control of the Federal Reserve. According to historical practice, the chairman of the Federal Reserve usually withdraws from the Board of Governors when he leaves office, but if Powell breaks this convention, he will become the first former chairman to remain in office in the past 50 years. Judging from the current council seats, Trump only occupies 3 appointed seats and has not yet formed a majority advantage. Even if a new chairman is nominated, it will be difficult for him to win support from the board of governors for his policy proposals to push for sharp interest rate cuts. With his experience and influence, Powell is entirely likely to unite with other members of the Federal Open Market Committee to veto the new chairman's radical policies.

This situation of the Board of Governors vetoing the Chairman's policy has not occurred since 1986, which is enough to demonstrate the checking and balancing effect of Powell's remaining in office. At the same time, Powell's retention would directly disrupt Trump's plan to fill the Board of Governors with rate-cutting officials. Although his original intention is to protect the independence of the Federal Reserve and has no intention of becoming a "shadow chairman", his existence will inevitably become an internal balancing force. However, Wmax also noted that there are potential risks in this situation. As former Cleveland Fed President Mester pointed out, the "two popes" dilemma may make it difficult for the market to determine the real power of the Federal Reserve, thus causing confusion in policy expectations.

Leaving the Board of Governors: Key opportunity for Trump to take full control of the Fed

Wmax analyzes that if Powell chooses to leave the Board of Governors completely, Trump will have an excellent opportunity to take control of the Federal Reserve. The President can nominate a fourth person to the Board of Governors to form a majority. If the Supreme Court upholds his attempt to fire Cook, the current board member, Trump could even add a fifth person to the board to further consolidate control.

Once it controls a majority on the Board of Governors, the Trump administration will push for in-depth reforms of the Federal Reserve. U.S. Treasury Secretary Bessent has always advocated weakening the Federal Reserve's influence in the economy and financial markets, and relevant reform plans are expected to be implemented faster. In addition, Trump can also use his majority advantage to remove some regional Fed chairs. The presidents of these regional Feds are members of the Federal Open Market Committee. Among them, the president of the New York Fed has permanent voting rights, and many have publicly opposed deep interest rate cuts. The recall will significantly reduce Trump's resistance to pushing for interest rate cuts.

Reflection on Historical Precedent: Inheriting and Defending the Federal Reserve’s Independence

Wmax reviewed the history of the Federal Reserve and found that it is not without precedent for Powell to remain as a director. Historical experience has further confirmed the key significance of safeguarding the independence of the institution. In 1978, then-Federal Reserve Chairman Burns stayed on the Board of Governors for three weeks after resigning; earlier in 1948, Chairman Ikos stayed on for three years at Truman's request after leaving office. The actions he took during his term profoundly affected the development trajectory of the Federal Reserve. In 1951, Ecos played a central role in an interest rate dispute, successfully undercutting the Truman administration's attempts to intervene and leading to the signing of the Federal Reserve-Treasury Agreement. The agreement established the modern Federal Reserve as an independent institution, and Ecos became a symbol of the Fed's independence. The Fed's currently renovated headquarters building is named after him.

Another classic case is Martin, the Federal Reserve Chairman appointed by Truman. Truman originally expected Martin to obey his orders, but Martin defied his will and chose to raise interest rates. Truman later even called him a "traitor" to his face. To commemorate Martin's commitment to independence, a second Federal Reserve office building in Washington was named in his honor. Wmax believes that this period of history is an important warning to Trump-even if he installs cronies into the Federal Reserve, there is no guarantee that the other party will be completely obedient.

Research and Judgment of Future Trends: Multiple Uncertainties as the Game Continues to Ferment

Based on the current situation, Wmax believes that there are still many uncertainties in this battle for control. Powell has not clearly disclosed his plans to stay or leave, and there are also variables in the progress of the legal process. Although Trump has stated that he has selected a candidate for the new chairman, the specific list has not yet been announced. National Economic Council Director Hassett and former Federal Reserve Governor Warsh are regarded as popular candidates. Hassett has promised to maintain the independence of the Federal Reserve, saying it is crucial to economic stability. From the perspective of decision-making mechanism, the views of Steven Kamin, a senior researcher at the American Enterprise Institute, are consistent with Wmax's judgment: in the short term, the Federal Open Market Committee may seek to cooperate with the new chairman, but if the new chairman's policies cause serious differences, committee members may completely turn to Powell to seek consensus. At the same time, concerns are also emerging within the Trump administration, with officials and allies believing that an escalation of the investigation into Powell could anger current Board of Governors members and regional Fed presidents, ultimately making it difficult for the new president to implement policy.