By Howard Schneider and Trevor Hunnicutt
WASHINGTON (Reuters) -U.S. President Donald Trump has not decided on a replacement for Federal Reserve Chair Jerome Powell and a decision isn't imminent, a person familiar with the White House's deliberations said on Thursday, as one central bank policymaker said any move to name a "shadow" chair would be ineffective.
The dollar dropped overnight and investors, also reacting to weaker economic data, increased their bets on Fed rate cuts this year after a Wall Street Journal story said Trump was considering naming Powell's replacement early in hopes that person could have immediate influence convincing the central bank to lower interest rates as the president has demanded.
Powell's term as chair ends in May, and the next scheduled vacancy on the Fed Board of Governors, which requires Senate confirmation of the president's nominee to fill, is not open until January.
The White House declined to comment, referring to the statements Trump has made publicly on the topic. Those have included regular beratings of Powell as "stupid" for not cutting rates, a June 6 statement that he would name Powell's replacement "very soon," resignation that a Supreme Court decision meant he could not fire Powell outright, and a statement this week that he had narrowed the list of replacements to "three or four."
Potential nominees include former Fed Governor Kevin Warsh, who has close ties to the Trump organization and was almost named central bank chief in the president's first term in the White House, as well as Kevin Hassett, who is the director of the White House's National Economic Council, current Treasury Secretary Scott Bessent, and current Fed Governor Christopher Waller, according to the person familiar with the deliberations.
But the person, who was not authorized to speak publicly about the matter, downplayed how fast Trump might act.
There are doubts as well about how much difference naming an early replacement for Powell might make in monetary policy decisions subject to debate among 19 central bank officials with 12 of them voting at any given meeting of the rate-setting Federal Open Market Committee.
"That would have no effect," Chicago Fed President Austan Goolsbee told CNBC's "Squawk Box" program, referring to the possibility Trump may put forth an early nominee.
"We have a chair of the (Federal Open Market Committee) ... That's Jay Powell. What somebody who is not the chair thinks about monetary policy - they can have whatever opinion they want. We have to go every six weeks and have votes."
Story continuesTrump has become increasingly pointed in calling for the Fed to cut rates, even as most central bank policymakers feel they are handcuffed until the administration makes final tariff decisions and they can study the impact of those rising import taxes on inflation.
In congressional hearings this week, Powell reiterated that the Fed is prepared to cut rates if the tariffs have no sharp effect on inflation, but that economists broadly anticipate the steep levies imposed so far and still in the offing will raise prices over the course of the year.
The effect on inflation "could be large or small. It is just something you want to approach carefully. If we make a mistake people will pay the cost for a long time," Powell said.
Since the Fed held rates steady at its meeting last week, several central bank officials have said they agree it is best to wait on rate cuts; Fed Vice Chair for Supervision Michelle Bowman and Waller, both Trump appointees, have said rates could be cut as soon as the July 29-30 meeting, given recent moderate inflation readings and the risk of the economy weakening.
Among the possible replacements for Powell, Waller would have the added benefit to Trump that he already has a vote on policy and working relationships among other officials built since joining the Fed's Board of Governors in January 2020.
RENEWED SPECULATION
The debate about Trump's central bank plans is playing out amid both ambiguous data and increased political focus on Powell.
Recent inflation readings have been better than expected, a fact cited by Trump in favor of lower rates, but company executives routinely insist prices are about to rise as they work off pre-tariff inventory.
The unemployment rate remains low. But data released on Thursday showed the overall economy shrank more than initially estimated in the first quarter after consumer spending was revised lower, weakening a key economic prop cited by policymakers who favor delaying rate cuts.
Meanwhile, the dollar has dropped amid talk of the "shadow" Fed chief idea and the possible implications for U.S. central bank independence.
"Trump's desire to 'shadow' the Fed using a designated replacement for Chair Jay Powell isn't a good way to promote the perceptions of integrity and autonomy in U.S. policymaking and, by extension, that of the reserve currency status of the USD (U.S. dollar)," said Thierry Wizman, global FX and rates strategist at Macquarie Group. "Some of this narrative is seeping into perceptions of the USD and contributing to its sell-off this week."
Powell's term as Fed chief does not end until next May, and a recent Supreme Court decision appeared to insulate him from being fired over a policy dispute - a fact that could also limit Trump's ability to reshape the central bank before his second and final term ends in January 2029.
(Reporting by Howard Schneider and Trevor Hunnicut; Editing by Chizu Nomiyama, Paul Simao and Andrea Ricci)
