A third term for Powell as Fed chair is unlikely — but not impossible

Bloomberg News

One thing that being married has taught me is that meaning is often conveyed not in the words we say to one another but in the manner in which those words are spoken — in other words, it's not what you say, it's how you say it. 

Yesterday Federal Reserve Chair Jerome Powell told the Economic Club of Washington that he intended to serve out the remainder of his term, which expires on May 12, 2026. When asked by moderator David Rubenstein — founder of the Carlyle Group, where Powell was once a partner — whether he might like to have another term as Fed chair after that, Powell characteristically demurred, saying simply, "I don't have anything for you on that today."

This exchange takes up approximately 15 seconds of a 45-minute conversation between Rubenstein and Powell that was otherwise unremarkable, if only because Powell has already been asked and answered every conceivable variation of the question "When is the Fed going to lower interest rates?" But those brief remarks about his own future at the central bank — and the context in which they were delivered — are worth unpacking.

Let's remember first that Jerome Powell's ascent to become the chair of the Federal Reserve has been somewhat unlikely from the start. Powell joined the Fed in 2012 as part of a package deal — Powell, a Republican, was nominated as a governor at the Fed along with Democrat and Harvard Professor Jeremy Stein in order to break a logjam of Fed nominations in the Republican-controlled Senate. Powell was reappointed to a full 14-year term in 2014 and remained at the central bank long enough to be at the right place at the right time: In 2018, then-President Trump picked him to serve as chair — over then-Chair, now Treasury Secretary Janet Yellen — seemingly for no other reason than his Republican credential. 

His odds for renomination at this point in his first term as chair were also rather long. The president that had nominated him was openly wondering whether he could fire Powell — or at least get away with it — and the field of Democratic presidential primary candidates seemed similarly inclined to strike out in a new direction. But once again, Powell stuck to his knitting and was rewarded with another term by President Biden, who was eager to distinguish himself from his overtly partisan predecessor and avoid a tangle in the Senate at the same time.

Powell's prospects for a third term as Fed chair, however, are considerably murkier for a couple of reasons. The first is that the candidate currently most likely to be inaugurated as president at the time of this writing is former President Trump, whose antipathy toward Powell seems undiminished with time. If Trump wins, there is ample reason to think that the new administration will demand a greater measure of personal loyalty to the president than Powell has been willing to offer, and for that reason alone Powell would have no chance of being renominated. 

If Biden were to prevail in November — which, contrary to popular opinion, is not actually impossible — the odds for Powell to be renominated increase from zero, but remain long. Part of that is because renominating a Fed chair for a second term is one thing but renominating them for a third is something else. The last Fed chair to serve three or more terms was Alan Greenspan, who served five consecutive terms from 1987 until 2006 and whose tenure was indelibly tarnished by the great financial crisis of 2008. There could be a reasonable expectation of political pushback against a Powell dynasty at the Fed from Democrats, and Biden may or may not be in a position to resist.

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Finally, there is the practical consideration of the expiration of Powell's term as Fed governor in 2028. Members of the Fed board of governors serve on fixed and staggered 14-year terms, and governors nominated to an unexpired term may be renominated for one — and only one — additional 14-year term. Leadership at the Fed is chosen among sitting governors, so in order to serve as chair you must already be a Fed governor or be nominated separately to an open seat on the board. 

Powell's term expires in 2026, but his term as governor expires in 2028, meaning he would only be guaranteed to serve as chair for two additional years if he were to be renominated. There is a loophole, however, in that a governor can remain in office after their term expires so long as a replacement has not been confirmed. Powell himself did this briefly after his first term expired in January 2014 and before he was confirmed for a second term that June. So Powell could be renominated, but could also be effectively fired at any time after 2028 if the president nominates someone else to sit in his seat.

But if the picture I'm painting here is not especially optimistic about the prospect for a third Powell term, it isn't entirely out of the question. For one, Powell has proven to be uncommonly adept at cultivating a credible image of impartiality among two key constituencies: policymakers in Washington and the market. In an era when impartiality is notably scarce — and in an area of economic policy where the lack of impartiality can be particularly damaging — Powell is a known quantity.

Powell's Fed may also be experiencing something of a victory lap on inflation around this time next year, when discussions around who should be Fed chair heat up in earnest. Inflation metrics have been looking good for the last couple of months, meaning the central bank could cut interest rates for the first time in three years as early as September. Depending on how and whether that comes to pass, Powell may reap the rewards of his patience — who better to helm the Federal Reserve than the guy who steered the U.S. economy through some of the choppiest waters we've seen in decades? 

All of this, of course, is based on the assumption that Powell wants another term if it were offered to him. Certainly one could be forgiven for not wanting to spend another four years living under a microscope and being asked the same questions over and over. But when he was asked yesterday whether he liked the job, Powell was unusually animated in his response. 

"I enjoy it quite a bit — I do," Powell said. "It's a great honor. It's incredibly interesting. I love the people we work with. I love the institution. At this time in my life, it's just been a great thing. I'm in my 13th year there, and it's been really challenging … but what else would you want?"