With Donald Trump, weeks feel like months. Take Greenland. In less than a week, we went from threats to restart a trade war and use force against a NATO ally, to an almost unexpected de-escalation, thanks to an agreement between the US president and NATO Secretary-General Mark Rutte. The famous framework that no one really knows what it entails.
However, there is one issue that has been at a standstill for weeks, if not months: the appointment of the next Fed chair. "I'll tell you soon," Donald Trump said yesterday aboard Air Force One. "I have someone in mind who I think is very competent, but I'm not going to reveal it for now."
For several weeks, all the US president's comments have pointed in the same direction: he has made his choice and the announcement is imminent. So why has this saga dragged on for so long? No doubt because he is not as sure of himself as he would like to claim. He has understood that once he settles on someone, he will no longer have the cards in his hand.
He himself has voiced this concern several times, including again on Wednesday in his speech in Davos. "All the candidates I met were terrific. I think they would all be able to do a fantastic job. The problem is that once hired, they change their attitude. (…) It's incredible how people change once they're in the job."
He can do anything… except set the Fed's rates
What Donald Trump wants to avoid is making the same "mistake" as in 2017. Because back then, he himself appointed Jerome Powell to lead the Fed. A choice he later regretted and repeatedly blamed on his Treasury Secretary, Steven Mnuchin. It is with that precedent in mind that Scott Bessent is avoiding getting too involved in this matter.
Deep down, Donald Trump knows that the Fed is independent, that its chairs act more to fulfill their mandate - price stability and maximum employment - than to please the person who appointed them. That is how the institution was designed, and a central bank's independence is also the best guarantee of inflation that is under control.
An independence that the Lisa Cook case should reinforce. This week, Supreme Court justices held a hearing to examine the legality of Donald Trump's dismissal of this Fed governor last August.
It will still take several weeks before a final ruling, although a favorable outcome appears to be taking shape for Lisa Cook. A broad, unchecked power of removal "would weaken, even destroy, the independence of the Federal Reserve," Justice Kavanaugh warned - even though he was appointed by Trump in 2018. He appears to fear that allowing a president to remove a Fed governor at will would ultimately lead to a kind of spoils system (the replacement of all senior civil servants when a president arrives at the White House).
Since the start of his second term, Donald Trump has pushed the limits of presidential power. In that quest, he has also tried to bring the Fed back under his control, although unsuccessfully so far. The man who, from his first term, claimed he could "do whatever he wants as president" will have to accept it : he is not the one who sets the level of the Fed's rates.
A constrained choice
Donald Trump will therefore not have a free hand over the next Fed chair. This is particularly true because he cannot really appoint just anyone. In theory, he can, although in practice, it has to be someone who is then confirmed by the Senate, where the Republican majority is only slim. It must also be a figure acceptable to the markets. Otherwise, we would see a spike in US rates.
That is why appointing one of his close allies now seems unlikely. If Kevin Hassett looked like the favorite for several months, he now appears out of the running. Donald Trump said last week that he wanted to keep him at the White House. And above all, Republican lawmakers have little appetite for confirming someone who would be too closely aligned with Donald Trump.
This is even truer since the threats to indict Jerome Powell. Two Republican senators have thus threatened not to vote for any confirmation until the matter is resolved. Kevin Hassett had also prompted distrust amongst bond investors, as the Financial Times reported in late November.
The three other candidates still in the running - Governor Christopher Waller, former governor Kevin Warsh and BlackRock's head of bond management, Rick Rieder - have no personal ties to Donald Trump.
If everyone was expecting an announcement in January, that is also because Stephan Miran's term as governor ends on January 31. Donald Trump should therefore use that seat to place the future Fed chair. However, Miran will remain in office until a successor is appointed by Donald Trump and then confirmed by the Senate.
