Name: Trump Is Considering a ‘Shadow Fed.’ Here’s Why That Could Be Risky
Uploaded: 2025-07-14T04:01:00Z
Duration: 6 min 24 s
Description: President Donald Trump has signaled he’s already looking to replace Federal Reserve Chair Jerome Powell far earlier than usual. Here’s how a so-called ‘shadow’ Fed would work, and why it could cause problems for markets.

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President Donald Trump has signaled he’s already looking to replace Federal Reserve Chair Jerome Powell far earlier than usual. Here’s how a so-called ‘shadow’ Fed would work, and why it could cause problems for markets. Photo Illustration: JJ Lin

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President Donald Trump has signaled he’s already looking to replace Federal Reserve Chair Jerome Powell far earlier than usual. Here’s how a so-called ‘shadow’ Fed would work, and why it could cause problems for markets.

Trump Is Considering a ‘Shadow Fed.’ Here’s Why That Could Be Risky

I call him "Too late Powell" 'cause he is always too late. We have a guy that's just a stubborn mule. We have a man who's not a smart man. He's always late.

Narrator: President Trump is very unhappy with Federal Reserve Chair, Jerome Powell. He's now considering naming someone to replace Powell by the summer or fall according to people familiar with the matter, that's earlier than the typical transition period, and could create what's called a "Shadow Fed Chair".

The Shadow Fed Chair is a completely new idea. We don't know who the next Fed chair is going to be, but what we do know is that the transition's going to be very different from what we've normally seen.

Narrator: Here's how Trump could attempt to undermine Powell's authority by creating a Shadow Fed and why it could be risky.

In April, President Trump was talking about firing Jay Powell, and in fact, the Supreme Court in May said, "You probably can't do that." So he's back to, geez, "What can I do here to try to get rid of this guy?" And one idea is just tell everybody this summer who you're gonna pick. And that way, you make Powell a lame duck.

Narrator: This is how a Shadow Fed chair would work. The Board of Governors is the governing body of the Federal Reserve System. It's run by seven members who are nominated by the President and confirmed by the Senate. They also serve on the Federal Open Market Committee, a 12-member voting group that sets monetary policy. Each board member serves a 14-year term, but the Fed chair serves a separate 4-year term, and must already be on the board or simultaneously appointed. Powell's second stint as chair ends in May, 2026. Although his term on the board technically doesn't expire until January, 2028.

So if you said in October, "Hey, here's who the Fed chair is gonna be, listen to this guy." It would be a way to undercut Jay Powell who you are really unhappy with, because he's not lowering interest rates as much as you want.

Narrator: Fed Governor, Adriana Kugler's term on the board ends in January, which means...

Trump could nominate somebody to that job, and they could take their seat in February, and then you could make that person the Fed chair when Jay Powell's term as chair is over.

It's interesting that people are using the term "Shadow Fed".

Narrator: That's Jeffrey Lacker, the former president of the Federal Reserve Bank of Richmond. He now provides criticism of the Fed's policy decisions as a member of the Shadow Open Market Committee.

The difference I see is that the shadow Open Market Committee has always grounded its commentary in economic science, in monetary economics, and monetary history.

Narrator: Trump has made clear he wants the Fed to lower interest rates.

If we got the rates down, we would be a rocket ship.

Narrator: This is a letter Trump sent to Powell and posted on Truth Social. He indicated rates should be as low or lower than 1%, well below the current range of 4.25 to 4.50%.

So if the shadow chair is such a great idea, why hasn't anyone done it before? Well, you could come up with four reasons. First, it's not necessarily gonna work. It may not change anything about the near term conduct of monetary policy. And in fact, it may just confuse matters. You're spitting in the soup here. Number two, it puts the chair in waiting in a really difficult position, because they have to go out there and say things that may make them look like a complete sycophant in the markets. Financial markets are gonna want to know that the Fed is still on the job when it comes to preventing big increases in inflation. And if you have somebody out there saying things that are intellectually incoherent, then it could actually put them in a disadvantage. Third, what if you say something that's at odds with what the President wants? If you get the job early, you could lose it before you're even confirmed, because heaven forbid, you say the wrong thing, and Donald Trump decides he doesn't wanna make you his Fed chair anymore. Fourth, Jay Powell has an option here to be a shadow chair after his term ends.

Assuming you are not reappointed, would you stay on as governor when your term as chair ends?

I'm not thinking about that. I'm thinking about this.

He could decide to stay and say, "Look, I'm not gonna let a Trumpian takeover of an institution that is gonna compromise this place."

You know, that would lead to some strong conversations, some disagreements, no doubt, behind the scenes. That kind of disagreement about policy happens, has happened in the past. The issue about the credibility of the Fed and the understanding of outside observers of where the Fed's headed and what it's likely to do in the near term, that's the big issue.

Interviewer: I was wondering if you've begun interviewing different candidates for the Fed pick?

Yeah, I know within three or four people who all gonna pick, I mean, he goes out pretty soon fortunately, 'cause I think he's terrible.

There's a huge guessing game right now. It almost feels like an episode of the Apprentice Fed Edition, where Donald Trump is casting different candidates for the job. One of the candidates is Kevin Warsh. He was a Fed Governor 15 years ago, including during the 2008 financial crisis. He was an advisor to President George W. Bush. In 2017, Trump gave a serious look to Kevin Warsh to be Fed chair, and we reported that he later told associates, you know, Kevin was great, but he just looks too young for the job. And then you have Kevin Hassett, who's currently the Director of Trump's National Economic Council. He headed the Council of Economic Advisors in the first term. Scott Bessent hasn't exactly denied speculation that he would be interested in the job. A couple of other candidates seen as more of a long shot would be Fed Governor Chris Waller. He's somebody who has had some prescient calls on the economy over the last couple of years.

Narrator: Still, whomever Trump chooses to lead the Central Bank next could face roadblocks implementing the president's wishes.

The chairman is just the chair of a committee and it's a big committee and it's a committee with a diverse range of views. And he can't unilaterally just jam what he wants down the committee's throat. I mean, that, it just doesn't work that way.

There will be a confirmation hearing, and you're gonna need to get at least 50 senators to say, "Yes, this person should be the next Fed chair." And what we've seen with the Senate and the Fed is they do care about this. Once the president makes his decision, it'll be up to the United States Senate to decide does this person have the right temperament to lead the Fed? And those could be difficult questions to answer given how direct the president has been about how he wants somebody who he thinks will do what he wants them to do.