Fed governor to resign early, handing Trump immediate opening on board

Federal Reserve governor Adriana Kugler is stepping down early from the central bank’s powerful board of governors, creating an immediate vacancy that will give President Donald Trump an early opportunity to shape the Fed’s leadership as he continues to push for lower interest rates.

Kugler, a labor economist, was nominated by President Joe Biden, and her term was set to expire in January. Her unexpected resignation opens a slot on the Fed that could help shift the balance of the central bank’s policymaking, which Trump has been seeking for months.

Whoever Trump nominates to succeed Kugler may ultimately replace Jerome H. Powell as chair of the seven-member Fed board.

“We just found out that I have a open spot on the Federal Reserve Board. I’m very happy about that,” Trump said late Friday before boarding Marine One.

Trump has repeatedly attacked Powell for not moving to immediately slash the Fed’s short-term interest rates, saying lower rates are needed to juice the economy. On Friday, he renewed those attacks, saying in a social media post that Powell should “be put ‘out to pasture.’ ” In an earlier post, he referred to the Fed chief as “a stubborn MORON” and said the Fed board should “assume control” if Powell refuses to reduce the cost of borrowing.

Powell has generally declined to comment on the president’s attacks.

“Trump’s influence on interest rates will now be felt earlier and more strongly,” because Kugler’s replacement adds another governor who may side against Powell on policy, said Derek Tang, an economist at LHMeyer, an economic consulting firm

The Federal Reserve is structured to be insulated from day-to-day political pressure, meaning it operates independently from the White House and isn’t subject to the annual congressional appropriations process. But the president appoints each of its seven governors and also designates one of the governors to serve as chair to a four-year term. The Senate confirms the nominees.

In a statement announcing her resignation Friday, the Fed said Kugler would return to teaching at Georgetown University in the fall. She had missed this week’s policy meeting, where the Fed left interest rates unchanged, citing personal reasons. Her resignation is effective Aug. 8.

For a period this past spring, Trump appeared to be leaning toward trying to fire Powell, but close advisers convinced him not to, for fear of disrupting financial markets from an all-out battle with the Fed.

Whomever Trump taps to lead the central bank faces a complex balancing act: managing the monetary policy goals of an institution designed to operate independently, while also navigating the demands of a president unafraid to publicly pressure the Fed for lower interest rates. The next chair would be likely to come under intense scrutiny from financial markets and within the Fed itself, as officials gauge whether political loyalty might come at the expense of the central bank’s credibility in fighting inflation.

If investors come to believe the next Fed chair will act as an extension of Trump’s political will, rather than as an independent steward of monetary policy, they could demand higher yields on U.S. government debt to compensate for the expectations of higher inflation. That could push up longer-term borrowing costs across the economy, even if the Fed bows to pressure from the White House to cut its short-term benchmark rate.

So far, the list of contenders for the top job include National Economic Council Director Kevin Hassett, former Fed governor Kevin Warsh and Fed governor Christopher Waller, each with distinct strengths. Treasury Secretary Scott Bessent is also seen as a potential contender, though Trump has made it clear he likes Bessent in his current position.

Trump and top administration officials have also criticized Powell for cost overruns on an expansive $2.5 billion renovation of two office buildings along the National Mall. Trump even took the unusual step of visiting the central bank in person last week, something a sitting president hadn’t done in nearly 20 years.

Trump, wearing a white hard hat alongside Powell, refrained from criticizing the Fed chair, telling reporters he didn’t want to make the meeting personal. He later said he wouldn’t fire the Fed chair and signaled he wanted the project to proceed. But scrutiny of the Fed’s facilities and spending may intensify as congressional Republicans press ahead with probes of the matter.

During his first term, Trump repeatedly criticized Powell – whom he appointed as chair – berating him on social media and imploring the Fed to lower rates. By late 2018, Trump started asking advisers whether he could fire Powell after markets dipped on fears of the president’s escalating trade war with China. His advisers told him he lacked the authority.

Publicly, Powell did not respond to the attacks, and while the Fed ultimately cut interest rates in 2019, it did so to address a slowdown in the U.S. economy caused by the U.S.-China trade war. It was an easier call for the Federal Reserve because inflation wasn’t a concern at the time, unlike the present circumstance.

Though governors are appointed to staggered 14-year terms, it’s common for them to leave early. Still, the timing of Kugler’s departure hands Trump the chance to install a new voice about six months before he otherwise might have been able to.

Powell’s tenure as chair expires in May, although he can remain on the Fed as a governor until early 2028. Trump’s selection for Kugler’s seat would be in position to step into the top job.