Powell to stay on Fed board after chairmanship, breaking 75-year norm

Federal Reserve Chair Jerome Powell will remain a Fed governor after his chairmanship ends on 15 May, breaking a 75-year tradition that incoming chairs inherit a vacated board.

Powell’s term as governor runs until early 2028. He has tied his decision to an open criminal investigation by the U.S. Attorney for the District of Columbia, which is examining renovations to the Federal Reserve’s $2.5bn headquarters in Washington. The Justice Department opened the inquiry in January. It was suspended in recent weeks but has not been formally closed.

“I’ve said that I will not leave the board until this investigation is well and truly over with transparency and finality, and I stand by that,” Powell said in remarks reported on 9 May. “I’m encouraged by recent developments, and I’m watching the remaining steps in this process carefully.”

The arrangement will leave Powell sharing the boardroom with his designated successor. President Donald Trump has nominated Kevin Warsh, a former Fed governor, as the next chair. Warsh has been approved by the Senate Banking Committee. He is expected to take the gavel on 15 May.

Senate Banking Committee Chair Tim Scott (R-S.C.) said Powell’s decision is unwelcome on the board.

“He’s breaking 75 years of precedent. Every time you get a new chairman, the former chairman leaves,” Scott said. “That’s good news because what you don’t want are these philosophies in conflict. I think for the country and for the Fed, it would be best if he left.”

Inside the investigation

The Justice Department began examining the Fed’s headquarters renovation in January. Investigators have focused on cost overruns and contracting decisions on the $2.5bn project at the Marriner S. Eccles Building and adjoining facilities. It is the first time in the central bank’s modern history that a sitting chair has faced an active federal criminal inquiry.

U.S. Attorney for the District of Columbia Jeanine Pirro paused the inquiry in recent weeks. She said her office had not found grounds to continue at this stage. She has not closed it.

“I want to see what’s there. If there’s something there, great. And if there isn’t, I’ll go home,” Pirro said on CNN’s “State of the Union” on Sunday.

Her office added that it “will not hesitate to restart a criminal investigation should the facts warrant doing so.” The Federal Reserve’s Office of Inspector General is running its own review of the renovation contracts. That review can refer findings to the Justice Department. It runs slower than a federal grand jury.

What the FOMC vote signals

Powell’s choice to stay arrives on the back of the widest split on rates the Federal Open Market Committee has shown in more than 30 years. The committee voted 8 to 4 at its most recent meeting to keep the federal funds rate target at 3.50 to 3.75 per cent. The four dissents were the highest count since October 1992.

Governor Stephen Miran, a Trump appointee, was among the dissenters. He has argued the central bank is moving too slowly on cuts. Once Warsh takes the chair, Powell will keep his vote. He is expected to anchor a more cautious bloc on the committee.

The market backdrop has not eased. The Fed’s most recent stability report warned of rising risks in private credit and in concentrated AI-driven equity valuations, even as overall financial conditions held firm.

Equity and rates desks read the news as a wash. Treasury yields were broadly stable on the day Powell’s plan became public. Futures markets continued to price one to two cuts by year-end.

What happens next

Warsh will be sworn in on 15 May. Powell will then sit as one of seven governors. There is no statutory bar on a former chair remaining on the board. Powell would be the first chair to do so since the late 1940s. His predecessors over the modern era, including Janet Yellen, Ben Bernanke, Alan Greenspan, and Paul Volcker, all left the building when their terms as chair ended.

Scott and other Republicans on the Banking Committee have signalled they will press Powell publicly to step down once the investigation closes. Senator Thom Tillis (R-N.C.), a Banking Committee member, has said Powell’s continued board presence risks blurring lines of accountability between the new and former chairs.

At the Fed, the practical question is coordination. Two governors with comparable rate-setting weight has not been the board’s working setup since the late 1940s. The chair sets the FOMC agenda. A former chair with a vote does not. He keeps a public profile that markets will read.

Powell’s stated reason is narrower. A sitting governor has standing protections against subpoenas tied to official acts. Once the inquiry is fully closed, he has said, those protections no longer matter. At that point he will go.