[Reuters Breakingviews] Fed chair’s foes form a risky new Team Transitory

By Gabriel Rubin

WASHINGTON, June 26 (Reuters Breakingviews) - U.S. Federal Reserve Chair Jerome Powell once tolerated what he deemed “transitory” inflation, only to see price rises spiral in the wake of the pandemic. He isn’t willing to make the same gamble again, despite political pressure to cut interest rates. On Wednesday, President Donald Trump resumed his attacks, saying that he’s weighing “three or four names” who are ready to replace Powell. Fighting with the central bank while raising trade uncertainty and adding $3 trillion to the budget deficit through tax cuts poses a triple shock to investors. It may prove no less fleeting than Covid-19’s long aftermath.

Congressional Republicans joined the campaign this week, pushing Powell to cut during his semi-annual appearance before committees in the House of Representatives and the Senate. He has good reason to resist, even while he acknowledged that the Fed’s current policy rate of up to 4.5% is restrictive. Almost unanimously, forecasters anticipate increasing inflation due to high tariffs and expansionary fiscal policy. Republicans accused Powell of taking a political stance on these policies. Yet the central bank’s independence from elected officials is key right now, when public expectations of incoming price hikes are rocketing.

Still, Powell’s position is becoming harder to maintain. Two Fed governors appointed by Trump — Christopher Waller and Michelle Bowman — now favor cutting rates, even though they voted to hold steady in June. While a cut in July seems unlikely, with futures contracts projecting the next cut in September, Powell might not enjoy another unanimous vote.

Trump and Republicans may continue ramping up pressure as they eye incipient signs of a slowdown ahead of midterm elections in November 2026. Powell’s task, though, is to maintain his institution’s legitimacy by avoiding past mistakes and handing a steady situation to his successor when his term ends in May.

The irony is that Trump could have his preferred outcome if he were willing to wait. The names floating around Washington as potential replacements for Powell — including former Fed governor Kevin Warsh, Waller, Treasury Secretary Scott Bessent and economic adviser Kevin Hassett — are all, to varying degrees, typical candidates who could easily secure approval. By the time they’re ready to step in, the initial blow from tariffs should, hopefully, be passing, leaving them freer rein.

Instead, by undermining Powell, Trump makes his successor’s job harder, since it risks making the bank seem politically compromised. The dollar slid on Trump’s renewed criticism, showing that investors already foresee the president influencing monetary policy. Trump is focused on changing the messenger, but it’s the message he doesn’t want to hear.

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CONTEXT NEWS

U.S. President Donald Trump called Federal Reserve Chair Jerome Powell "terrible" in his latest attack on the central bank chief. In remarks during a press conference at the Hague on June 25, he added that he was in the process of considering Powell’s replacement. Powell’s term as chairman does not expire until May 2026.

Republican lawmakers urged Powell to cut the federal funds rate from its current range of between 4.25% and 4.5% at his semi-annual testimony to Congress on June 24 and 25.

Powell acknowledged that rates are in “modestly” restrictive territory but warned that the Fed needs to be cautious amid economic projections showing a rise in inflationary pressure due to fiscal and trade policies.

Subsiding inflation puts the Fed in restrictive territory