The Fed Chair Race Is Becoming A Proxy War For Central Bank Independence

In the White House, fidelity to President Donald Trump is seen as a key attribute for Federal Reserve chair contenders. On Capitol Hill, it could be a major liability.

The Justice Department’s move to investigate Fed Chair Jerome Powell is renewing lawmakers’ focus on central bank independence as Trump inches closer to deciding who he wants to nominate as the next Fed chief.

And that could lead lawmakers to take aim at the front-runner, National Economic Council Director Kevin Hassett, if he is nominated for Powell’s position. Hassett has been a ubiquitous presence on TV, making the case for the president’s economic agenda and his repeated calls to cut interest rates.

“I've got a lot of respect for [Hassett], but he also has a lot of history with the president, so we’ll just have to look at that,” said Sen. Thom Tillis, a retiring North Carolina Republican who sits on the Senate Banking Committee, which oversees the Fed and will advance any nominee for confirmation in the upper chamber.

The new scrutiny on the Fed’s political autonomy illustrates how the investigation into Powell could have an impact far beyond its outcome. The legal clash could disrupt the president’s vision for who leads the Fed starting in May. And it could also compel Powell to stay on the Fed board beyond the expiration of his term as chair, depriving Trump of getting a pick for another seat until January 2028.

“The markets obviously back President Trump, and all the Fed chairs and the Senate back Powell. This is not about an investigation,” said Steve Bannon, a former White House chief strategist and close ally of Trump. “Who actually controls our central bank? A potential Hassett nomination might be hostage to this standoff" between Trump and the Senate.

Hassett, a Ph.D. economist who has been a close Trump adviser since the president’s first term, is the only chair finalist who has weighed in on the investigation of Powell. The probe centers on comments the central banker made to the Senate Banking Committee last year about renovations to Fed headquarters. Hassett said at the White House on Monday that he “would expect that the markets would be happy to see that there’s more transparency at the Fed.”

He added that he hadn’t seen any of the DOJ materials sent to the Fed, but “it seems like the Justice Department has decided that they want to see what’s going on over there with this building that’s massively more expensive than any building in the history of Washington. And if I were Fed chair, I’d want them to do that.”

White House spokesman Kush Desai said in a statement that “until an announcement is officially made by the President, any reporting about Fed nominations is pointless speculation.”

Rep. Don Bacon (R-Neb.) said in an interview Tuesday that Fed independence “should be a factor” in the confirmation process of Trump’s eventual chair pick.

“Having an independent Fed is important for America,” he said.

Senate Majority Leader John Thune (R-S.D.) said on Monday that he wants to see the Fed operate “in an independent way, free of politics.”

“It could make it challenging,” Thune said, when asked if the Powell investigation will make it more difficult to confirm Fed nominees.

A string of other Republican senators, who will have a vote on the next Fed chair, voiced their unease with the Powell probe. While it’s unclear how much Hassett’s comments about it will weigh on their decision, the remarks caught the attention of Fed watchers.

“Before that appearance, I was willing to give Hassett the benefit of the doubt but would no longer support his candidacy,” said Peter Conti-Brown, an expert in Fed history and politics at the Wharton School at the University of Pennsylvania. “He did not need to publicly distance himself from President Trump. He just needed to say nothing at all. What he did say is, in my view, disqualifying.”

Still, a GOP senator, granted anonymity to speak candidly, said Hassett could likely be confirmed, arguing that it would be “too big a deal” for Republicans to oppose Trump's Fed chair pick.

The senator added that he expected Tillis — despite his concerns about the Powell investigation — would “fold.”

Tillis has said he won’t vote to confirm any Fed nominees until the Powell investigation is resolved. He told reporters that he “wouldn’t consider my mother for the post under the current conditions.”

“We’ve got to resolve this matter,” he said. “It’s foundational to making decisions about the board going forward.”

Other Republicans say the DOJ’s investigation won’t be part of their calculus for future nominations. Sen. Mike Rounds, a South Dakota Republican who sits on the Banking panel, told reporters Tuesday that the Powell probe “does not change anything” about how he will weigh the nominees.

Mark Spindel, chief investment officer at Potomac River Capital and co-author of a book on Fed independence, also said he thought Hassett could still get through, adding that his ability to communicate clearly with the president about complicated economic issues could be a big asset in the job.

“Hassett ticks every box that every standard Fed chair or nominee would tick,” he said. “I still think he will get the president’s nomination, and I think the president can work the phones pretty aggressively.”

Megan Messerly and Sam Sutton contributed to this report.