'The Apprentice': Federal Reserve Edition

US President Donald Trump appears poised to name the next Federal Reserve chairman ahead of schedule in an attempt to undermine incumbent Jerome Powell, who has opposed him by refusing to lower interest rates.

Trump makes no secret of his disdain for Powell, whom he recently described as "a mentally average person" with a "low IQ for what he does." But Powell's term ends in May 2026, and the Supreme Court has ruled that (unlike other independent bodies) the president cannot fire the Fed chairman.

Typically, the US president announces the new Fed chairman a few months before the current president's term ends (barely enough time for Senate confirmation hearings and a smooth transition). Naming a successor ten months earlier would be highly unusual. So why do it? Apparently, Trump's plan is for the Fed chairman-in-waiting to form a "parallel" Federal Open Market Committee that would subject the real committee to public pressure to intensify interest rate cuts.

The idea of a shadow committee dates back to economists Karl Brunner and Allan Meltzer , who introduced it in 1973 during the early years of the Great Inflation , when the Fed’s policy was widely criticized for being too accommodative. Brunner and Meltzer were prominent academics but had no direct influence on policymaking. By contrast, Trump’s plan (which was teased by Treasury Secretary Scott Bessent during the 2024 campaign) would put the appointee at the center of a clearly public attempt to undermine Powell’s authority.

But analysts who see this as a serious attempt to harass Powell may be missing the point. Monetary policymakers are unlikely to place any more importance on a shadow Fed chair chosen by Trump than on Trump himself (in any case, the move may encourage them to assert their independence by doubling down on current policies). Rather, the real goal of the appointment seems to be to weaken the next Fed chair before his term even begins, forcing him into a kind of public learning period so that Trump can test his monetary policy ideas in advance and test his ideological loyalty to the Trumpist agenda.

Moreover, the shadow Fed chairman will know that any hint of independent thought could lead to Trump repeating the famous refrain from The Apprentice , his reality show : "You're fired." While the Supreme Court has ruled that the president cannot fire the sitting Fed chairman, nothing prevents him from withdrawing an appointment. The mere threat of doing so can command obedience from the appointee, and after months of public displays of loyalty to Trump, he may find it very difficult to resist his demands.

Leading candidates to replace Powell include former Fed Governor Kevin Warsh (who was a finalist when Trump nominated Powell in 2017), Kevin Hassett (director of the National Economic Council), and Bessent. Also on the list is current Fed Governor Christopher Waller (a former academic known for his work on central bank independence ), whom Trump nominated in 2020 and who is generally well-regarded by Republicans.

The list of candidates includes capable and experienced figures who can rise to the challenge of sustaining economic growth while containing inflation. But Fed chairs are not dictators of monetary policy; they must convince the rest of the Fed Committee or risk losing their votes and being in everyone's sights. Even a strong, independent candidate can lose authority after a prolonged parallel presidency. Trump's image as a lackey would greatly diminish his credibility and limit his influence over the Fed and the financial markets.

Hats off: Trump found a devilishly ingenious way to limit the next Fed chairman, whom he can't control (at least in theory). But with this strategy, Trump risks harming himself and the US economy.

Contrary to popular belief, the Fed does not control all interest rates. It only sets the very short-term benchmark rate, while longer-term interest rates are largely determined by the markets. These rates reflect expectations about future Fed decisions, and those expectations are based on the assumption that monetary authorities will work to keep inflation under control.

If Trump succeeds in pressuring the Fed to lower interest rates further than necessary, inflation expectations will rise, and so will long-term interest rates. And since those rates influence everything from mortgages to car loans, ordinary Americans will be hurt.

The purpose of an independent central bank that primarily seeks price stability (an idea I first proposed forty years ago) is to keep long-term interest rates low. Perhaps that's why it was enough to hear that Trump intends to announce the next Fed chairman ahead of time to cause a sharp drop in the dollar. In any case, there's no doubt that The Apprentice: Federal Reserve Edition will be a great television spectacle (which may be what matters most to Trump).