New Federal Reserve News Agency: After Powell is under criminal investigation, the landscape for his successor becomes even more "enigmatic."

On January 15th, renowned financial journalist Nick Timiraos, known as the "New Federal Reserve Correspondent," wrote that the criminal investigation into current Federal Reserve Chairman Jerome Powell is fundamentally altering the competition for candidates that was already in its final stages.

The article pointed out that this incident has not only created new obstacles on Capitol Hill but has also sparked sharp questions about whether any nominee possesses "independence"—a tension that already existed but has now become impossible to ignore.

Trump has consistently stated that he values "loyalty" in candidates. However, as Powell noted, the Justice Department's investigation is essentially a pressure tactic to force the Federal Reserve to lower interest rates, which makes "loyalty" a potential "liability" for nominees.

The article stated that the strong backlash from Congress may force the eventual nominee to "walk a tightrope" during confirmation hearings this spring: they must not anger the president by questioning Trump's challenges to the Federal Reserve, nor can they appear too close to Trump, which could raise concerns among legislators or the market about their independence.

Timiraos pointed out that one of the popular candidates, Kevin Hassett, faced criticism for attempting to defend the investigation during an interview, calling it legitimate government oversight, which gave a relative advantage to Christopher Waller. Meanwhile, if Trump chooses Waller as Powell's successor, Powell is more likely to voluntarily resign from his board position, which is set to expire in 2028. This would free up an additional board seat for Trump, allowing him to fill two vacancies this year.

Former Federal Reserve Chair and former Treasury Secretary Janet Yellen bluntly stated: "Trump has made things very rigid; he says he will refuse to appoint anyone who disagrees with him or does not act according to his wishes. If you start from this point, it undermines the credibility of the candidates." Analysts pointed out that the investigation, which was intended to apply pressure, has instead tied Trump's hands, forcing him to bow to "independence," or else the nomination will be indefinitely stalled in Congress, exposing the market to significant uncertainty risks.

Senate's "Ultimatum": Independence Becomes the Core Red Line

Timiraos stated that the political storm triggered by this investigation has had the most direct consequence of resistance from within the Senate Republican Party. North Carolina Senator Thom Tillis and Alaska Senator Lisa Murkowski made it clear this week that they would not vote to support any nominee until the investigation is concluded.

As a member of the Senate Banking Committee, Tillis's stance is crucial. He even used a very vivid metaphor to express his firm determination:

"In the current situation, I wouldn't even consider my mother running for this position because we must first resolve this matter."

He emphasized that this is the cornerstone for determining the future direction of the Federal Reserve. As a long-time critic of the Trump administration, Tillis's words are not mere rhetoric; with the support of Democrats, he has the full capability to stall this nomination.

So, why has this investigation made the nomination process so passive? Timiraos believes that this is akin to wanting to replace someone in a position that not only requires professional capability but also public trust. However, if the current holder is being investigated for being "disobedient," the successor, if perceived as too "obedient," will be seen as a puppet, thereby losing market trust.

Tillis hinted that candidates viewed as closer to Trump will face harsher scrutiny regarding their independence. In contrast, Federal Reserve Governor Christopher Waller, due to his lack of close ties with the president, may become a "safe choice" to alleviate concerns.

The "Two Kevins" Contest: Loyalty vs. Political Burden

The article states that despite other candidates emerging, the core of this contest remains the so-called "Two Kevins" battle: former Federal Reserve Governor Kevin Warsh and White House National Economic Council Director Kevin Hassett.

Hassett, due to his close relationship with Trump, was a strong contender for the position, but this relationship may now become his Achilles' heel.

In an interview with CNBC this week, he expressed a desire for "Jay (Powell) to do well" while also attempting to defend the investigation, calling it a legitimate government oversight. He stated:

"This is part of government operations, allowing the inspector general to check whether your actions are completely above board." This statement quickly drew criticism from economists and analysts.

Jason Furman, an economic advisor during the Obama administration, candidly remarked that it was "sad but not surprising" to see Hassett accept this as a "above board, legitimate independent investigation." This posture of defending political attacks clearly does not align with someone trying to lead an independent central bank.

In contrast, although Warsh has publicly dismissed concerns about the Fed's independence and even suggested that Powell brought it on himself, he is currently not serving in the White House and does not need to defend the government's controversial actions in the media daily like Hassett does.

Some of Trump's allies believe that as the investigation into Powell escalates, Hassett's standing in the Senate may be compromised, which gives Warsh a relative advantage.

An Uncertain Future and Potential Political Maneuvering

Regarding future trends, Timiraos pointed out in the article that Trump remains inscrutable to his advisors. An insider revealed that the current frontrunner "depends to some extent on the specific circumstances of the day."

Although Trump recently hinted that he might prefer Hassett to stay in his current position because he likes Hassett's style of defending policies on television, he is also impressed by Warsh's sharpness and image.

This raises a deeper strategic question: what benefits does Trump gain by choosing the "safe faction" over the "loyal faction"?

The article also mentions a very pragmatic consideration. The Trump administration has long hoped that Powell would completely leave the Federal Reserve after stepping down as chairman. Although Powell's term as chairman ends in May, his term as a governor lasts until 2028 Analysts believe that if Trump chooses Waller— a colleague respected by Powell— as his successor, Powell is more likely to proactively resign from his position as a governor. This would free up an additional governor seat for Trump, allowing him to fill two vacancies this year.

However, if the investigation escalates to criminal charges, the situation will become even more uncontrollable.

Larry Kudlow, who served as the Director of the National Economic Council during Trump's first term, warned on Fox News that unless the investigation into Powell is dropped, the president will not be able to confirm his Federal Reserve chair nominee.

The article concludes by reiterating that the implications of this event extend far beyond mere personnel appointments. It is a profound game regarding the independence of the Federal Reserve and the boundaries of presidential power. Washington D.C. federal prosecutor Jeanine Pirro claims the investigation aims to determine whether Powell lied to Congress, while Powell insists it is an excuse to force interest rate cuts.

The article states that in this game, whoever ultimately receives the nomination will carry a significant political burden. For the market, this uncertainty poses the greatest risk. As Timiraos noted in the article:

What was originally intended to apply pressure may instead bind Trump's own hands and feet, forcing him to bow to "independence" when selecting a successor, or face the risk of the nomination being indefinitely shelved by Congress in an election year.