Game of Power: Why does Bessent want to oust Powell? The Federal Reserve's independence is facing a test

The selection of the Federal Reserve Chair has become a key issue for the Trump administration. Treasury Secretary Steven Mnuchin has recently been active, not only publicly criticizing current Chair Powell in the media but also applying pressure through legal investigations and other means, with a clear goal: to ensure Powell leaves the Fed completely after his term ends in May. Behind this is not just personnel change but also a reflection of the Trump administration’s reshaping of the Fed’s power structure.

Mnuchin’s Multiple Pressures

Public Criticism and Behind-the-Scenes Push

According to the latest reports, Mnuchin has been continuously criticizing Powell on CNBC and other media outlets. He stated that Powell should not participate in oral debates regarding Fed Board member Lisa Cook’s case, arguing that Powell would attempt to “favor” the Fed. This public criticism appears to target a specific case but is actually paving the way for a broader power adjustment.

The analysis by Nick Timiraos of The Wall Street Journal (known as the “Fed’s mouthpiece”) is more straightforward: Mnuchin’s criticism is backed by a Department of Justice investigation. The DOJ is investigating the Fed’s headquarters renovation project, providing Mnuchin with an excuse to apply pressure. He publicly worries that the investigation will “complicate” the Trump administration’s efforts to confirm a new Chair, but in reality, he is using this investigation to pressure Powell.

Dual Goals

Mnuchin’s plan includes two levels:

• Push Powell to resign from his Board position after his May term ends
• Ensure the new Chair candidate aligns with the Trump administration’s policy preferences

This means Mnuchin not only wants to oust Powell but also to ensure he completely leaves the Fed’s decision-making layer.

New Dynamics in the Candidate Race

Wosh emerges as the clear frontrunner

Based on market forecasts, the probability of former Fed Governor Kevin Wosh becoming the next Chair has risen to about 60%, significantly ahead of other candidates. In comparison, White House economic advisor Hasset’s chances have fallen to 15-16%, and incumbent Board member Waller is around 13-14%.

Wosh has become a popular candidate because he is perceived as more receptive to government policy guidance. This is exactly what the Trump administration wants: a compliant Fed Chair.

Tight Timeline

Powell’s term will end on May 15. Trump has stated he will announce a successor within this month, giving Mnuchin a window to exert pressure. Once the new Chair is confirmed, Mnuchin needs to ensure Powell agrees to resign rather than remaining as a Board member at the Fed.

Threats to the Fed’s Independence

Changes in the Power Structure

This personnel battle reflects a deeper issue: the independence of the Fed is being challenged. Traditionally, the Fed Chair is appointed by the President but operates relatively independently. However, the Trump administration’s approach indicates they want the Fed to be more obedient to government economic policies.

Dual Role of Judicial Investigations

The DOJ investigation into the Fed headquarters renovation appears technical but is actually a political tool. By using the investigation to pressure the Fed, the Trump administration is paving the way for a new Chair—one more susceptible to government influence.

Possible Future Developments

Based on current information, the following directions are worth monitoring:

• Announcement before the end of January: Trump may announce the new Chair candidate this month, with Wosh as the top contender
• Pre-May negotiations: Mnuchin needs to ensure Powell agrees to resign, a process likely to continue with turbulence
• Board membership issue: Whether Powell continues as a Board member after stepping down as Chair will be a key negotiation point
• Market reaction: Once the new Chair is confirmed, markets will reassess the Fed’s policy independence

Summary

Mnuchin’s public criticism of Powell is not an isolated event but part of the Trump administration’s effort to reshape the Fed. Through legal investigations, media influence, and personnel moves, Mnuchin is paving the way for a Fed Chair more aligned with the government’s wishes. This reflects a reality: the Fed’s independence is facing unprecedented political pressure.

For markets, the key is understanding the policy inclination of the new Chair. If Wosh ultimately takes office, markets will need to reassess the future direction of monetary policy—potentially less driven solely by economic data and more influenced by political factors. This has significant implications for the dollar, bonds, and stock markets.