Jerome Powell's term as US Federal Reserve chair ends in May, and his successor faces the challenge of establishing credibility despite political pressure (Jim WATSON)

Jerome Powell’s term as US Federal Reserve chair ends in May, and his successor faces the challenge of establishing credibility despite political pressure (Jim WATSON) · Jim WATSON/AFP/AFP

US President Donald Trump is set to announce his pick to chair the Federal Reserve on Friday morning, setting up a key shift in the central bank’s leadership.

Powell’s chairmanship ends in May, and the next chief will need to establish credibility despite political pressure, while walking a policy tightrope between curbing stubborn inflation and supporting a weakened jobs market.

The frontrunners for the job are former Fed official Kevin Warsh, Fed governor Christopher Waller, Rick Rieder of BlackRock and Trump’s chief economic adviser Kevin Hassett.

What are the biggest tests awaiting Trump’s nominee?

– Credibility –

Trump has drastically escalated his targeting of the US central bank, trying to reshape its leadership by moving to fire a Fed governor while calling repeatedly for interest rates to be slashed.

His Justice Department also launched an investigation into Powell over renovations at the Fed’s headquarters, in a move that Powell warned could threaten Fed independence.

Analysts expect Trump’s pick will be more likely to push for lower rates.

But this also means it will be tougher for the new leader to establish credibility and convince investors of the bank’s independence, said Michael Strain of the conservative American Enterprise Institute.

“A new Fed Chair may want to hold off on rate cuts for at least one meeting to reassure financial markets,” KPMG chief economist Diane Swonk wrote in a recent note.

– Senate confirmation –

Trump’s nominee to head the Fed must also undergo Senate confirmation, and will likely face tough questioning from lawmakers even as the president’s Republican party holds a Senate majority.

Already, Republican Thom Tillis, who sits on the Senate Banking Committee, vowed to oppose the confirmation of any Fed nominee — including the next chairman — until the probe against Powell is resolved.

Other Republican lawmakers, like Senator Lisa Murkowski of Alaska, have spoken up against the investigation too.

The top Democrat on the banking committee, Senator Elizabeth Warren, has meanwhile accused Trump of wanting to push Powell off the Fed Board altogether and “install another sock puppet” to complete his takeover of the central bank.

For now, a wildcard is whether Powell remains as Fed governor after his four-year term as chairman ends, preventing Trump from influencing the board’s composition further.

Most chairmen leave when their terms expire, but they do not have to — and Powell could remain a governor until 2028.

– Forging consensus –

Within the bank, the Fed chair is seen to have an outsized influence on forging consensus among the rate-setting Federal Open Market Committee (FOMC) as well.

The FOMC’s 12 voting members take majority votes to decide on interest rate adjustments, and observers will be monitoring if the next chief can unite officials to back further rate cuts.

The Fed has seen deepening divisions recently as some policymakers seek lower rates to boost the economy and shore up a labor market they view as fragile.

But others have pushed back on rate cuts amid inflation worries, as Trump’s tariffs flow through supply chains and raise the costs of certain goods.

– Political pressure –

The new Fed chair will also have to contend with a president who has relentlessly criticized their predecessor and made no secret of his preference for much lower interest rates.

Trump has already said that he would judge his choice on whether they immediately cut rates.

At a speech to the World Economic Forum at Davos, Switzerland, Trump said of the contenders for the chairmanship: “They’re saying everything I want to hear.”

“They get the job, and all of a sudden, ‘Let’s raise rates a little bit,'” he added. “It’s amazing how people change once they have the job.”

“It’s too bad, sort of disloyalty,” Trump said.

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