The Fed's Power Struggle: Why the New Chairman May Not Call the Shots

A New Chairman With Big Plans — But One Major Obstacle

Kevin Warsh is about to become the next Chairman of the Federal Reserve, and he wants to make sweeping changes to how the nation's central bank operates. But there's a catch: the current Chairman, Jerome Powell, isn't going away just yet.

Until Powell gives up his regular seat on the Fed's Board of Governors, Warsh may have the title of Chairman but not the power to back it up.

What Does Warsh Want to Change?

Warsh has three big goals:

**1. Stop the Fed from holding long-term debt.** Right now, the Fed owns trillions in long-term bonds. Warsh wants to shift to shorter-term securities — think of it like preferring a savings account you can access quickly rather than locking your money up for decades.

**2. Get out of the mortgage business.** The Fed currently holds a mountain of mortgage-backed securities (bonds tied to home loans). Warsh wants the Fed to stick to Treasury securities only — essentially, lending money to the government rather than propping up the housing market.

**3. Unwind "Quantitative Easing" (QE).** QE was the Fed's emergency playbook during the 2008 financial crisis: it printed money to buy bonds and pump cash into the economy. Warsh originally supported it as a temporary fix, but it became a permanent tool. He wants to reverse course and shrink the Fed's bloated balance sheet.

If Warsh succeeds, the Fed would also likely stop paying banks interest on the cash they park at the central bank — a policy that costs taxpayers billions each year. This would be a fundamental shift back to how monetary policy worked before 2008.

Why Can't Warsh Just Do It?

Here's the political chess match: Powell still holds a seat on the seven-member Board of Governors. With Powell staying, his allies control four of the seven board votes. Warsh's side has only three.

On top of that, the presidents of the 12 regional Federal Reserve Banks were all vetted and approved under Powell's watch. They're more likely to side with Powell than with Warsh on major policy decisions.

In plain English: Warsh can sit in the big chair, but he can't outvote the people who disagree with him.

Why Is Powell Sticking Around?

Powell has said he'll leave his board seat once the administration commits to ending a Justice Department investigation into the Fed. But there may be another reason he's staying.

If Powell leaves, President Trump gets to appoint his replacement. That would give Trump-appointed members a majority on the board — and that majority could potentially fire regional Fed bank presidents who oppose them.

The courts recently made it hard for the President to directly fire Fed board members (as seen in the Lisa Cook case). But a board majority firing bank presidents? That's a different legal question — and one Powell may want to prevent by simply not leaving.

Powell's term as a board member doesn't expire until January 31, 2028. If he decides to stay the full term, Warsh's reform agenda could be stuck in neutral for years.

What Could Warsh Do About It?

As Chairman, Warsh does control some things — like office assignments, staffing, and daily operations. There's speculation he could make Powell's life at the Fed uncomfortable enough to encourage an early departure. But ultimately, the decision to leave belongs to Powell alone.

What This Means for You

For now, don't expect dramatic changes in Fed policy. Interest rate decisions, the Fed's massive bond holdings, and the overall direction of monetary policy are likely to remain on autopilot until this power struggle resolves.

If you're an investor, this means:

- **Short-term rates** will probably follow the same gradual path the Fed has signaled

- **The bond market** won't see the Fed rapidly selling its holdings anytime soon

- **Mortgage rates** are unlikely to be affected by Fed portfolio changes in the near term

The bigger shifts Warsh envisions — a leaner, less interventionist Fed — remain a longer-term possibility, not an immediate reality.