Trump's Possible Federal Reserve Shake-Up Could Target Regulatory Leadership

In a possible move to reshape the Federal Reserve, former President Donald Trump's advisors are reportedly considering strategies to gain quicker influence over the central bank.

What Happened: Trump may explore demoting Michael Barr, the current vice chair for Supervision, allowing him to remain on the board but stripping his regulatory authority, Washington Post reports. Barr was appointed by President Joe Biden and his term as vice chairman expires in 2026.

This would enable Trump to avoid the potential market instability associated with replacing Jerome Powell as Fed Chair, whose term runs through 2026. Trump's team believes such a maneuver could prevent backlash while still exerting influence over financial regulations, according to the Post.

Bank executives have reportedly heard Trump advisors are discussing this strategy with major financial institutions, with some seeing it as "water-cooler gossip" and others as a serious possibility. Yet, the legality of demoting a Fed governor remains uncertain and could face significant court challenges.

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Meanwhile, as discussions about additional rate cuts continue, former FDIC Chief Sheila Bair has cautioned the Federal Reserve against taking this step, citing concerns about exacerbating inflation. With inflation still at a concerning 3.3% increase, excluding food and energy, Bair warns that further cuts may stir inflationary pressures, especially for lower-income households.

Why It Matters: A reshuffling at the Fed's regulatory helm could reshape the trajectory of U.S. financial oversight. With ongoing debates surrounding interest rate cuts, concerns about inflation's disproportionate impact on lower-income Americans are at the forefront of discussions.

Trump's move to alter leadership at the Fed could also spark political and legal challenges, complicating the central bank's independence.

Trump is not expected to renominate Powell for a second term, potentially leading to a significant shift in the Fed’s leadership by 2026. If Barr remains in his current position, his influence will continue until his term expires in July 2026.

However, if Trump proceeds with this demotion strategy, he could potentially have a new regulator in place much sooner.

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Image created using artificial intelligence via Midjourney. This article was generated using artificial intelligence and was reviewed by Benzinga editors.