Powell is staying at the Fed: What to expect

• Key takeaway: As Federal Reserve Chair Jerome Powell's term nears its end, stakeholders expect his role as a governor to be low-key and to continue until the release of an inspector general report clears him of any wrongdoing.
• Expert quote: "Powell was pretty clear, he's not going to be a shadow chair. He knows what it's like to be in a supporting role." — Scott Alvarez, adjunct professor at Georgetown University Law and former general counsel at the Federal Reserve
• Forward look: Kevin Warsh, President Donald Trump's pick to lead the Federal Reserve, is expected to be confirmed as chair in the coming weeks after his nomination cleared the Senate Banking Committee and moved to the full Senate. 

Federal Reserve Chair Jerome Powell is expected to remain on the board of governors for an undetermined period after his term as chair ends, a move aimed at preempting potential legal challenges tied to renovations at the central bank's headquarters.

The decision, which has little historical precedent, raises questions about how his continued presence could affect monetary policymaking and board dynamics.

Powell's term as chair expires May 15, but he may continue serving as a governor until early 2028. Kevin Warsh, the choice of Donald Trump to lead the Fed, is expected to assume the chairmanship.

Market watchers expect Powell to maintain a low profile as governor, though his continued presence could draw criticism from the White House.

During an April post-Federal Open Market Committee news conference, Powell said he would remain as a governor "for a time" until he is confident no action will be taken by the Justice Department.

"I will leave when I think it is appropriate to do so," he said.

Some Fed watchers do not expect Powell's continued presence to complicate monetary policymaking, viewing it instead as a dynamic the board will adjust to. Brian Gardner, a policy strategist at Stifel Financial, said Powell is likely to keep a low profile, which would include limiting any public appearances.

"I don't think he's going to be a thorn in the side of Kevin Warsh on monetary policy," Gardner said. "I don't think he's going to give a lot of speeches. I think he'll be purposefully vague in what he says, and there may be situations where he doesn't take Q&A, so don't expect to hear a lot from Powell."

Scott Alvarez, adjunct professor at Georgetown University Law and former general counsel at the Federal Reserve, said Powell could help Warsh establish relationships within the Federal Open Market Committee and the broader board. 

"Powell was pretty clear that he's not going to be a shadow chair," Alvarez said. "He knows what it's like to be in a supporting role. I think that could be a positive for Warsh in building relationships, especially with some of the Fed regional presidents who have very different views on the economy than Warsh."

But others say that even if Powell keeps a low profile, his mere presence may draw unwanted attention. Mark Spindel, co-founder of Potomac River Capital, said Powell remaining as governor makes him "a magnet for presidential pressure," limiting the ability for engagement to shift directly to Warsh.

"The polarity should shift to Kevin," Spindel said. "His presence on the board runs the risk of confusing markets and of encouraging the president to continue focusing on Jay when, at this point, or soon, Kevin deserves that seat in the star chamber."

Spindel and others expect Powell to step down once the Federal Reserve inspector general's report on headquarters cost overruns is released.

"I think he wants to see that the IG has cleared him of any associated wrongdoing with overruns and the expenses of the project," Spindel said. "We should have a forthcoming report quite soon, and that report, I would imagine, would clear Jay and he can step down with the finality of this report."

Powell, however, is eligible to remain a governor until Jan. 31, 2028, leaving open the possibility he could serve out his full term depending on how events unfold. If he stays beyond the Fed's inspector general's report, Spindel said it could signal broader uncertainty.

"If he stays past the publication of the IG report, we can infer that there are more risks to the institution than we understand right now," he said.

U.S. Attorney for the District of Columbia Jeanine Pirro said on April 24 that the Justice Department will drop its investigation into Powell, ending a monthslong standoff that had imperiled the confirmation of Warsh.

Pirro said the Federal Reserve inspector general will instead take over the review of spending overruns on the central bank's Washington headquarters, though she reserved the right to reopen the investigation if warranted.

Alvarez said inspector general reports typically take months to complete, but because this review was requested last year, publication could be imminent.

"The IG has been working on this since Jay asked them to do this report back in July and it's already been nine months, so I'm sure they've made substantial progress and I don't expect they want to drag this out," Alvarez said. "I expect they'll have an answer within the next few months."

He added that if Powell remains after the report is released, and no DOJ action follows, his tenure would likely be brief.

"Depending on when the report comes out in the FOMC meeting cycle, there is a tradition at the Fed of announcing departures with enough advance notice so officials do not get access to FOMC materials, making it easier to transition without inside information," he said.