Trump's probe of Powell could muddle Fed plans

Power struggle has the potential to galvanize bank against president and confuse investors.

- BY ENDA CURRAN, JONNELLE MARTE AND SALEHA MOHSIN

JEROME POWELL was widely expected to leave the Federal Reserve in May. Now, however, he may stay on.

(CHIP SOMODEVILLA Getty Images)

The Trump administration’s latest attack on the Federal Reserve stoked expectations that Jerome Powell will stay on the Board of Governors after his term as chair ends in May — setting up the optics of a rival center of influence inside the world’s most powerful central bank, even if Powell doesn’t want it.

That unusual scenario gained traction after the Department of Justice served the Fed with grand jury subpoenas, an unprecedented move viewed widely as an escalation of President Trump's efforts to influence monetary policy.

It’s far from clear how the legal process will play out and what decision Powell will make on his future.

Those who know Powell say if he does stay on, he would do so only to protect the institution and would have no interest in serving as a shadow Fed chair.

But if the legal development does provoke Powell to stay, it would upend Trump’s stated plans to stack the board with officials who support his calls for steep interest-rate cuts. It also could create a powerful counterweight inside the Fed to whomever Trump picks as the next Fed chair.

Fans of Powell and foes of Trump might cheer at that result. But analysts say that outcome might be confusing for investors, making it difficult to parse which policymaker holds sway and which way rates are headed.

“It really would set up, potentially, dynamics of having a ‘two popes’ situation where financial markets and the public may get a little confused about who's in charge,” said Loretta Mester, former president of the Cleveland Fed.