Key insight: The Federal Reserve's bylaws — or lack thereof — mean that the Fed chair's actual powers are largely undefined and based on precedent, norms and persuasion.
Forward look: The possibility of a Democratic appointee after the next presidential election could create the conditions for a power struggle on what has long been a consensus-driven and nonpartisan board.
What's at stake: The Fed Board wields immense power in bank policy, leading Basel III negotiations and playing a critical role in payments and emergency lending.
WASHINGTON — As Kevin Warsh settles into his new role as Federal Reserve Chair, he will meet his predecessor, Jerome Powell, on the central bank's powerful board, a situation that no other chair has faced in decades.
There's little formal process governing how power dynamics on the board are addressed and not much in the way of a roadmap for how this situation will play out, according to multiple Fed watchers and an American Banker review of the rules governing the central bank's board, which wields significant power in directing both regulatory and monetary policy. For example, the board's public bylaws do not explicitly give the Fed chair the power to set the board meetings' agenda.
"A lot of what they've done in terms of how they conduct their meeting, what they vote on and so on, is not really set in stone," said Derek Tang, policy economist at Monetary Policy Analytics, Inc. "So one question we ask ourselves is, 'What are the guardrails, and what does the law allow or disallow?'"
Under Powell,
"There's no reason to think that has to continue," Tang said. "What if there is a future Vice Chair for supervision that's Democratic, but Warsh is still the Fed chair for two more years? In that situation, would he want to have more of a say on what comes to the table?"
This sets the stage for a fractured Fed board, and one where Warsh could potentially lose control.
"Is it likely? No. But is it more likely now than at any point in the last 30 years? Absolutely," said Aaron Klein, a senior fellow at the Brookings Institution. "The Fed board is splintering in a way that it hasn't in over a generation."
Typically, the heads of executive departments decide what is on the agency's agenda; in the case of multimember,
But there's
The Fed is structured differently than the FDIC, and few analysts think a direct repeat of those events is likely, but the situation shows that boards — especially those with a former chairman on it — can overrule the chair when the rules governing those actions aren't explicit.
It also wouldn't be entirely new for a Fed chair to be outvoted, Klein said.
"It's been a long time since the chair has had significant revolt, but it has happened," he said.
In the 1980s, Paul Volcker nearly resigned over an incident where a rogue board hijacked the agenda and outvoted Volcker on an issue with the discount rate. Fearing a market crash, then-Treasury Secretary James Baker worked with the dissenting governors and convinced Volcker to hold another vote, which went his way.
Powell's continued presence is itself unusual. He dismissed the notion at a press conference that he would be a "shadow" Fed chair and insisted he would keep a low profile, even making light of the situation by
The Fed board as it stands now is evenly split between board members appointed by a Democratic president and a Republican one, with Powell sitting in the middle, having been appointed by both Trump and Biden. The Fed's policymaking process for banks has not been explicitly partisan, but the central bank tends to take its regulatory cues from the administration. Warsh and other Trump appointees have said that, while they support independence for the Fed's monetary policy activities, they do not support similar independence for regulatory policymaking.
Powell has shown a willingness to be a contrarian during his final months in the Fed's top position. In his first public remarks since stepping down as chairman, he continued to highlight the importance of the Fed's independence.
"Like many other institutions, the Fed has been undergoing a stress test," he said, accepting the 2026 John F. Kennedy Profile in Courage Award over the weekend. "Congress wisely chose to insulate monetary policy decisions from political pressure. … These protections have served the public well, and administrations from both parties have respected them. If any administration finds a way to remove Fed officials over policy differences, then future administrations will do so as well. The public would lose faith that the central bank will make decisions based only on what's best for all Americans."
The cost for a Fed board schism at this point could be high, especially as the board's regulatory agenda has largely been consumed with deregulatory and regulatory tailoring initiatives for which there is broad support on the board. Kathryn Judge, a bank law professor at Columbia University, said the chances of a rogue board wresting power from Warsh are pretty slim, especially considering that such a usurpation could bring unintended consequences for the insurgents as well.
"I'm skeptical that governors representing the previous, rather than current, administration would seek to wrest authority away from the chair," Judge said. "Given that most of the Board's authority is regulatory in nature, there is also a risk that any effort to undermine the Chair could provide the basis for
But that doesn't mean that future proposals, or a change in administration that comes with new appointees, couldn't shake up that calculus.
"We don't have any reason to believe that this process is anything other than collegial, but I do think it's interesting if there are issues that surface later on," Tang said. "When push comes to shove, is there a point at which the other governors might put their foot down?"
