President-elect Donald Trump’s advisers are busy scheming how to reshape the Federal Reserve’s leadership, reportedly eyeing Fed Governor Michelle Bowman for the vice-chair role overseeing supervision. This revelation follows Michael Barr’s announcement on Monday that he will step down as vice-chair but remain on the Fed board. Trump’s team is also shortlisting potential replacements for Fed Chair Jerome Powell, whose term ends in May 2026, as they scrutinise current officials’ remarks on interest rates with the enthusiasm of armchair referees.

Despite handpicking Powell during his first term, Trump has made no secret of his dissatisfaction with the Fed chair’s decisions, seemingly regretting his choice like a buyer’s remorse over a bad real estate deal. The names floated as Powell’s replacements include Trump loyalists and conservative hawks such as Kevin Hassett, Larry Lindsey, Marc Sumerlin, David Malpass, Kevin Warsh, and Bowman herself. Governor Christopher Waller, reportedly sidelined for backing a politically inconvenient rate cut in September, is curiously absent from serious consideration.

Bowman, however, appears to be the frontrunner. A fifth-generation banker with a penchant for public battles over-regulation, Bowman has emerged as a staunch critic of Barr’s proposals for higher bank capital requirements under Basel III. Instead, she has advocated for better supervision, which has endeared her to community bankers but drawn ire from advocates of stricter financial safeguards. If appointed, her ascension could significantly shift the Fed’s regulatory direction.

Trump’s plans for the Fed underscore his broader interventionist tendencies, with risks aplenty. His team’s preference for ideological allies risks turning the central bank into a battleground for partisan policy rather than an institution guided by data-driven decisions. Trump’s public criticism of the Fed already rattled markets during his first term, and his potential reshaping of its leadership could further undermine confidence in its independence.

Adding to the intrigue, Barr’s decision to step down from the vice-chair role while retaining his board seat throws a wrench into Trump’s plans. By law, the next vice-chair must come from within the existing seven-member board, limiting Trump’s choices and potentially complicating his efforts to install an outsider. During a press conference on Tuesday, Trump cryptically promised that Barr’s replacement would be announced “soon,” leaving observers to wonder whether Bowman’s appointment is already a foregone conclusion.

Bowman’s track record offers a mix of hawkish monetary policy views and aggressive regulatory stances. In September, she became the first Fed governor in 19 years to dissent from a Federal Open Market Committee decision, voting against a half-point rate cut in favour of a more modest quarter-point reduction. Her public critiques of the Fed’s handling of the Silicon Valley Bank collapse in 2023 have further cemented her reputation as a bold—if divisive—figure within the institution.

But, Trump’s interventionism raises serious questions about the Fed’s future. His allies have hinted at the possibility of replacing Powell before his term ends, a move that could unsettle global markets already navigating a complex economic landscape. Beth Hammack, another potential contender for a board seat, brings decades of experience at Goldman Sachs. Still, her opposition to December’s quarter-point rate cut signals potential friction within a Trump-influenced Fed.
Barr’s departure highlights the tension. While confident he would prevail in any legal challenge to his position, Barr deemed staying in the role too distracting amidst Trump’s looming influence. His exit casts further doubt on the future of the landmark proposal to raise capital requirements for America’s largest banks, a plan he played a central role in shaping.
The stakes are high. Trump’s Fed shakeup risks politicising monetary policy, eroding the institution’s credibility, and destabilising markets. For an administration that has already taken liberties with norms, turning the Fed into a political tool could mark a tipping point for the world’s most influential central bank. Whether Trump’s bold gambit pays off or plunges the Fed into chaos remains to be seen.