This week in Trumponomics: Dueling Fed chairs

When it comes to the Federal Reserve, President Trump can’t get no satisfaction. He wants the Fed to cut interest rates, and it continually declines to do so. He mused about firing Fed Chair Jerome Powell earlier this year, but the Supreme Court quashed that idea. He routinely trolls Powell anyway, to no effect.

So now Trump says he may choose a replacement for Powell months before Powell’s term expires in May 2026. Powell would stay in his job until next May, while the “shadow chair” offered a kind of alternative view of what the central bank’s monetary policy could be, or would be once Powell was gone. That might telegraph to markets that lower rates and looser monetary policy are coming once Powell exits.

Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments

Like much of what Trump does, the idea is unprecedented and jarring. The Fed is the most powerful financial institution in the world, fully able to move markets and drive the direction of the economy. Investors parse every word the Fed chair utters, looking for signs of future action. Two voices saying contradictory things about Fed policy couldn’t possibly be helpful.

But is the idea really that crazy? Corporations do CEO succession planning all the time, and it’s actually considered mismanagement if they don’t plan for the departure of key executives. Warren Buffett said in May that he finally plans to step down as CEO of Berkshire Hathaway at the end of this year, with longtime deputy Greg Abel taking the job. Buffett and his now deceased partner, Charlie Munger, had been talking up Abel for several years, so shareholders expected and welcomed the news.

There’s a difference, however, between prudent succession planning and what Trump seems to have in mind. Abel is not going to spend the rest of 2025 going on TV to call out all the mistakes he thinks Buffett might be making and promising to shake things up the moment Buffett is gone. He could make subtle changes over time, but investors broadly expect him to manage Berkshire much as Buffett has.

Trump wants regime change at the Fed, not continuity. Whoever he picks will undoubtedly be more dovish than Powell and far more willing to cut rates. Powell and a majority of the Fed’s policymakers have been holding off on rate cuts since last December, waiting to see if inflation picks up. Many economists think that’s prudent, given that Trump’s tariffs are a tax pushing up costs, which could add a full percentage point or more to the inflation rate. The Fed normally raises rates to head off inflation, and cutting rates amid rising inflation can make a price surge worse.

Read more: How jobs, inflation, and the Fed are all related

Trump seems not to care about the inflationary threat. He may also believe that lower rates will stimulate growth and offset the depressant effect of his tariffs. Trump, in his second term, has also overlooked expertise and staffed the government with loyalists willing to fight all his fights and attack all his enemies with the vigor of Trump himself.

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So Trump’s shadow chair would likely be somebody who parrots Trump’s claims that Powell is a “numbskull” and a “dummy” who doesn’t know what he’s doing. Every time Powell gives testimony or holds a press conference, the anti-Powell could hold his own public event, rebutting Powell and treating investors to frothy dreams of how much richer they’ll get once Powell is out of the way. Maybe the shadow chair will show up at Jackson Hole in August and heckle Powell during his annual economic speech.

This all sounds kind of silly, but it may already be affecting markets. After Trump floated the idea of a shadow chair, market expectations changed from two Fed interest rate cuts this year to three, according to the CME Group’s FedWatch tool. Changing interest rate expectations can affect stock prices, since lower rates sometimes correlate with higher corporate profits.

Frontrunners for the shadow job supposedly include Treasury Secretary Scott Bessent, White House economist Kevin Hassett, Fed governor Chris Waller, and former Fed governor Kevin Warsh. Those are all pretty serious people not known for the kind of mudslinging Trump may be looking for. Bessent generally declines to say much about the Fed’s current policy, which is exactly what markets expect from a Treasury Secretary. The others have argued for a looser policy, but within the normal confines of respectful disagreement.

Commerce Secretary Howard Lutnick is more of a bomb-thrower willing to trash-talk the Fed, a la Trump. He recently posted a tweet explaining “why President Trump calls Powell a loser,” for anybody wanting a tutorial. But Lutnick is the bad cop to Bessent’s good cop, and investors would not find comfort in Lutnick’s barroom demeanor if he were in line for the Fed job. If Trump’s shadow chair spooked markets, it would be counterproductive.

There’s also the small problem that the Fed chair isn’t a dictator unilaterally deciding whether to cut rates. There are 12 members of the Fed’s policymaking committee, each with one vote at each policymaking meeting. The chair can be influential, but not autocratic. Powell isn't even the most hawkish voting member, dead-set against rate cuts. He's more of a moderate lodged between hawks resisting rate cuts and doves who think the Fed should be cutting now or soon.

As many analysts pointed out when Trump was talking about firing Powell earlier this year, a new chair would still leave the current policymaking board intact. Even Powell would stay. While his term as chairman expires in 2026, his term as a voting member of the policymaking committee runs to 2028.

A shadow chair wouldn’t have any voting power until the Senate confirmed him or her to the job next May. The best such a person could do is amplify the chorus of voices vilifying Powell. Maybe that would be good enough for Trump.

Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.

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