Jerome Powell making a 'significant mistake' by staying on at the Fed, Sen. Tim Scott says

• Powell stated he will not leave the board until an investigation into Fed building cost overruns and his related Congressional testimony is complete, though the criminal probe has been referred to the Justice Department's Inspector General
• Scott argued Powell's decision creates conflicting philosophies on the board and suggested Powell may be 'poking the president in the eye' by staying on through 2028
• The Senate Banking Committee advanced Kevin Warsh's nomination after Sen. Tillis dropped his opposition when the Trump administration's criminal investigation into Powell was ended

Summary:

Sen. Tim Scott (R-S.C.), chair of the Senate Banking Committee, criticized Federal Reserve Chair Jerome Powell's decision to remain on the Fed's Board of Governors after his term as chair ends May 15. Scott called it a "significant mistake," noting Powell is breaking 75 years of precedent where outgoing chairs typically leave the board entirely.

Key Issues:

Powell can serve as a board governor until 2028, which prevents President Trump from securing a majority on the seven-member board. This decision follows escalating tensions between Powell and Trump over interest rate policy and an administration investigation into cost overruns at the Fed's headquarters renovation project.

Political Developments:

The Trump administration, through U.S. Attorney Jeanine Pirro, initially pursued a criminal investigation into Powell regarding building costs and related congressional testimony. The probe was recently referred to the Justice Department's Inspector General, effectively dropping the criminal aspect. Powell stated he won't leave until the investigation concludes "with transparency and finality."

Sen. Ted Tillis (R-N.C.) had blocked support for Powell's successor, Kevin Warsh, until the criminal investigation was dropped. Following its conclusion, Tillis endorsed Warsh in April. The Senate Banking Committee approved Warsh's nomination last week, with a full Senate vote expected next week.

Market Implications:

The leadership transition introduces uncertainty around Fed policy direction, particularly given Trump's preference for lower interest rates. Scott suggested Powell's decision to stay may be "poking the president in the eye," signaling potential ongoing friction between the central bank and White House that could impact monetary policy independence and market confidence.