Jerome Powell is not going anywhere before May 2026. Despite stringent criticism from President Donald Trump for not cutting interest rates since Trump returned to office — including, at one point, a public threat to fire him — Powell has made clear that he has no intention of stepping down before his term as Chairman ends in May. Furthermore, his position as a member of the Board of Governors runs through January 2028, giving him continued influence. Even after his Chairmanship ends, Powell could remain a thorn in the administration’s side — shaping the internal Board debate as well as speaking publicly in favor of central bank independence.
With Powell’s resistance to political pressure remaining firm, the contest to succeed him is heating up — and two leading contenders, both named Kevin, are already campaigning in public and appealing to the President through their policy pronouncements.
The first, Kevin Warsh, is a former Federal Reserve Governor who lost out to Powell in the Chairman race back in 2017. Long viewed as a monetary policy hawk, Warsh last week did a remarkable about-face. On Fox Business’ Kudlow show, Warsh lambasted the current Fed for holding back economic growth through “bad supervision policies, bad monetary policies, and a very confusing set of standards.” He now believes the economy is being choked by excessively tight Fed policy.
As Governor of the Federal Reserve, the same Kevin Warsh warned in September 2009 — with the unemployment rate at 9.8% and still rising following the Global Financial Crisis — that the Fed should pull back on policy easing to prevent new inflationary pressures. Good for Warsh for making the switch from his hawkish stance in recent days — Trump would surely notice and give him a high grade as he evaluates the merits of potential nominees.
Then there’s Kevin Hassett, Director of the National Economic Council, who was once a vocal advocate for central bank independence. But politics makes for strange bedfellows. Hassett, too, has changed his tune. No longer preaching independence, he now criticizes Powell and the Federal Open Market Committee for allegedly allowing partisan bias to shape their decisions. His own sharp turn toward Trump’s position has nothing to do with politics, of course. It is just a happy coincidence. Got it?
As if the two Kevins weren’t enough to cloud the future path of monetary policy, Treasury Secretary Scott Bessent, another former defender of central bank independence and potential contender to succeed Powell, has joined the chorus. He had earlier drawn a distinction between Trump’s demand for lower Federal Funds interest rate and his own preference for reduced long-term Treasury yields, emphasizing the importance of bringing down borrowing costs on the federal debt.
That nuance appears to have been set aside in recent weeks. Bessent now directly criticizes Powell for not cutting rates and mocks the Fed’s concern about tariffs pushing up inflation. On Fox News, he derisively referred to the Fed as suffering from a case of “tariff derangement syndrome.”
How can we explain this sudden convergence — three senior officials, all of whom previously supported central bank autonomy, now parroting the same message that Powell must go and rates must fall?
The answer likely lies in President Trump’s own public comments. He has made no secret of his intention to appoint a Fed Chair who is more pliant to his policy demands — someone who will cut rates sharply and, if necessary, adopt unconventional measures to support growth ahead of the 2026 midterm elections. In this political audition, past principles are being discarded in real time.
What does this mean for bond yields?
Markets will increasingly look past Powell and begin pricing in a future Fed led by someone far more dovish — and politically aligned with the White House. That shift could put downward pressure on short-term rates but upward pressure on long-term yields, especially if inflation expectations rise and investors lose faith in the Fed’s independence. The yield curve will likely steepen, not because of optimism about growth, but because of deepening concern about credibility, inflation, and fiscal dominance. A single-day widening of the 2 / 10 spread by 5 basis points yesterday, a 9.6% move, may have been just the start.
The battle of Kevins may be entertaining political theater, but it introduces real uncertainty into the outlook for monetary policy — and for the bond market.
Dr. Komal Sri-Kumar
President, Sri-Kumar Global Strategies, Inc.
Santa Monica, California
www.srikumarglobal.com
@SriKGlobal
July 12, 2025
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