Trump’s surprise Fed pick buys him time on Chair selection

WASHINGTON – US President Donald Trump’s move to fill a slot at the Federal Reserve on a temporary basis offers him a chance to install an ally at the central bank, while giving him more time to weigh an even larger decision: who will be the next Fed chair. 

Mr Trump said on Aug 7 he will nominate Dr Stephen Miran, chairman of the White House Council of Economic Advisers, for a seat on the Fed’s Board of Governors that expires in January 2026.

“In the meantime, we will continue to search for a permanent replacement,” Mr Trump said. 

That “permanent replacement” would receive a full, 14-year governor’s term and could very well be selected to replace Mr Jerome Powell when his term as chair winds up in May. Mr Powell has so far declined to say that he will leave the Fed then. He can legally stay until his underlying post as a governor runs out in 2028.

A nominee for Fed chair must first be a governor on the board. That means Mr Trump’s only near-term opportunity to bring in an outsider to lead the central bank may come when the seat Dr Miran will fill opens again at the end of January.

It also does not prevent Mr Trump from tapping current Fed governor Christopher Waller, who is now seen among the favourites for the top job.

Mr Trump has said former Fed governor Kevin Warsh and National Economic Council director Kevin Hasset are also in the mix. 

“By selecting Miran, Trump has made a stop-gap appointment and given himself until January to make the main call,” said Evercore ISI analysts Marco Casiraghi and Gang Lyu in a note to clients. “This way, Trump did not tie his hands, keeping his options open regarding the choice of the new Fed governor and especially the new Fed chair.”

In Dr Miran, Mr Trump would also get another benefit: a policymaker who supports his push to cut interest rates.

Intense disapproval

Mr Trump has been highly critical of the Fed, repeatedly blaming the central bank and Mr Powell for being too slow to lower rates. Mr Trump has argued that the Fed – which has left rates unchanged in 2025 – is keeping the federal government’s debt-servicing costs too high and holding back economic growth.

The intense disapproval, and his pledge to pick a rate-cutter to lead the institution, has led to questions over whether Mr Trump’s pick for chair will guard the decades-long tradition of Fed independence on monetary policy, or give in to the President’s demands – a prospect that deeply worries many economists and investors.

“Concerns over the Fed’s diminishing independence could naturally lead to USD selling pressure,” said Mr Yusuke Miyairi, a foreign-exchange strategist at Nomura, referring to the US dollar.

A key reason for the Fed keeping rates on hold in 2024 has been Mr Trump’s imposition of new tariffs on a wide swathe of US trading partners. Most policymakers, including Mr Powell, have cautioned that the duties could reignite inflationary pressures at a time when they have not yet fully cooled price growth to their 2 per cent target. 

That sentiment, however, is not unanimous. In July, Mr Waller and Governor Michelle Bowman dissented against the decision to again hold rates steady, saying they favoured a quarter-point cut amid growing signs of weakness in the labour market.

The Fed has three policy meetings remaining in 2025 and Dr Miran, if confirmed by the Senate, could add to the voices in favour of lowering rates.

When he joins the Fed, Dr Miran will represent “an additional vote for a rate cut, or a dissent in case the committee chooses to wait until later this year”, said Dr Joseph Brusuelas, chief economist at RSM US LLP.

Dr Miran may be unlikely, however, to attend the Fed’s next gathering – Sept 16 and 17. The Senate is on its annual August recess and is not scheduled to return to Washington until early September.

Tariff booster

Dr Miran would fill the governor slot being vacated by Ms Adriana Kugler, who unexpectedly announced in August she would resign from the board before her term was up.

Dr Miran, who earned an economics PhD at Harvard University, has aligned with Mr Trump on a range of economic policy issues, including tariffs. Speaking on Bloomberg Television on Aug 7, he said there was “zero macroeconomically significant evidence of price pressures” from Mr Trump’s tariffs.

“Overall, we don’t expect significant inflation from the tariffs,” he said. If inflation were to materialise from tariffs, “it would be a one-time price-level shift, not an enduring trend”, he added.

Dr Miran’s voice will be just one among a committee where members need strong economic arguments to sway votes their way. Interest-rate decisions require a majority of the Federal Open Market Committee. All seven governors vote, along with the president of the New York Fed and four of the other 11 regional bank presidents.

“He’s just one member and he’s not going to go in and bring structural change or lead to larger rate cuts,” said Mr David Beckworth, senior research fellow at the Mercatus Centre at George Mason University. “In just a few meetings, it’s not going to undermine Fed independence.”

Yet, his nomination is an important signal of what Mr Trump wants from the central bank ahead of his choice to succeed Mr Powell.

Mr Trump wants a “pro-growth set of monetary policies that has a bias towards inflation”, said RSM’s Dr Brusuelas. Even if Dr Miran is unable to meaningfully impact the committee’s view on the path for interest rates, investors could have to adjust to more divergent views on the committee, he added.

“For the foreseeable future, unanimous decisions on the direction of monetary policy are likely to disappear,” he said.

Radical changes 

Dr Miran might also represent the vanguard of Trump appointees seeking more radical changes at the central bank.

In March 2024, he published a paper with Mr Dan Katz, now chief of staff at the Treasury Department, laying out their vision for the Fed. It included shortening the terms of governors and “clarifying that members serve at the will of the US president”, a view the Supreme Court has signalled it would not support.

The pair also took aim at another crucial piece of the Fed’s insulation from political interference in proposing the central bank’s funding be subject to congressional appropriations. The Fed currently finances itself through income from its securities portfolio. Both changes would require legislation.

More broadly, Dr Miran and Mr Katz questioned the value of central bank independence.

“In practice, central bank independence is intended to allow the pursuit of long-term goals despite short-term political vicissitudes, but it can also bestow power without accountability.”

In a response, Bloomberg Economics’ David Wilcox wrote that the plan would “shatter market confidence – and for good reason. An extensive academic literature and our historical experience in the US demonstrate that increased political control tends to generate worse inflation”.

Dr Miran and Mr Katz also called for limitations on Fed board members’ ability to serve in the executive branch after leaving the central bank.

“Short-circuiting the revolving door between the Fed and the executive branch is critical to reducing the incentives for officials to act in the short-term political interests of the president,” they wrote.

Meanwhile, investors will remain “squarely focused” on the race for Fed chair, said Evercore’s Dr Casiraghi and Mr Lyu.

“We think that the choice of Miran leaves the door open for all the other candidates, and in particular for Waller, whose chances to become chair would have diminished significantly had Trump given Kugler’s replacement a permanent and stronger endorsement for the future.” BLOOMBERG