President Trump recently nominated Kevin Warsh to become the next chairman of the Federal Reserve's Board of Governors. And it's got us thinking about the power of the Fed chair, and where that power comes from.
On paper at least, the chair of the Fed doesn't seem like he or she should be that powerful. The Federal Reserve Act, which created America's central bank, established a bunch of limits on the authority of any one person to shape our economy.
The Fed chair, for example, only has one out of 12 votes on the Federal Open Market Committee (FOMC), the crucial decision-making body that sets interest rates. One of 12! It's hard enough for me and a small group of my friends to pick which movie to watch. I can't even imagine trying to convince a majority of eggheads — at least seven — on some fancy committee what the proper interest-rate policy should be to achieve the Fed's dual, sometimes-conflicting mandate of low, stable inflation and a strong labor market. That said, the Fed chair obviously does more than just try and herd cats on this important committee.
And, so, we've been wondering, is the Fed chair actually that powerful? And, if so, why?
Princeton University economist Alan Blinder researches and teaches about the Fed (he's been a frequent guest on Planet Money). Blinder served as vice chair of the Fed back in the mid-1990s. That's the Fed's number 2, right behind the head honcho, who was then Alan Greenspan.
"He was the boss," Blinder says of Greenspan. And yeah, he says, Fed chairs actually do have "a great deal" of power. "Now, you wouldn't learn that by just reading the Federal Reserve Act."
To understand the scope of this "great deal" of power, we first need to make clear what "the Fed chair" job actually entails. The Fed chair is actually the chair of two different bodies — the Board of Governors and the FOMC. They're appointed by presidents and confirmed by the Senate to be the Chair of the Board of Governors for four-year terms. The board is made up of six other members who are also presidentially appointed and confirmed by the Senate (in staggered, 14-year terms to safeguard the institution's independence from any particular president).
The Board of Governors has a big professional staff and oversees a bunch of important financial stuff, from banking supervision and financial regulation to payment systems to economic research to the day-to-day operations of the Fed. That's one important area where the Fed chair exercises power.
But Fed chairs are — by tradition, not law — also the chair of the FOMC, which, again, is arguably the most important policymaking organ of the Fed because they're the group that makes the crucial decisions about interest rates. It's where most of the exciting action is. Each year, typically at their first meeting in January, FOMC members vote on who will chair their important committee — and by long-standing tradition, they always select the Fed chair (they don't have to; more on this in a bit, because the fact that the president doesn't actually appoint the head of the FOMC could be relevant if there was ever a battle over Fed independence).
It's true, Blinder says, that the Fed chair "only has one vote out of 12 on the FOMC and could in principle be outvoted." However, in practice, "it has never happened in the history of the Federal Reserve."
Wow. That's worth repeating. On the crucial FOMC decisions about whether interest rates should go up or down, the Fed chair has never been outvoted!
Meanwhile, it's also extremely rare for the Fed chair to be outvoted on the Board of Governors.
David Wessel, a long-time economics journalist who now is director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, pointed to what seems to be the last instance where the Fed chair was outvoted on the Board of Governors. That was under the chairmanship of Paul Volcker, all the way back in 1986 — the same year the band Europe released "The Final Countdown" and people apparently thought it was cool to wear neon spandex and leg warmers. In other words, a long time ago.
What explains the Fed chair's incredible track record?
Now, just because the Fed chair has always been in the majority at the FOMC and has almost always been in the majority at the Board of Governors doesn't mean that they're dictating to these bodies what they should do.
That said, a recent working study by Cooper Howes, an economist at the Fed, and three other academic economists, analyzed FOMC meeting transcripts over a few decades. And they found that the final policy decision that the FOMC made about interest rates lined up virtually "one-for-one with the Chair's preferred change." They conclude that "while disagreement is pervasive among FOMC members, when it comes time to make a decision, the Committee largely follows the Chair's preferences." It confirms previous findings from other economists and political scientists, including Chappell, McGregor, and Vermilyea (2005).
Gary Richardson, an economist at UC Irvine who served as the first official historian of the Federal Reserve System, says this evidence may overstate how all-powerful Fed chairs actually are. He suggests that the Fed chair's incredible track record of triumphing in committee votes may be partly the result of a give and take between them and the other committee members. Fed chairs, he suggests, read the room in the weeks or months prior to official votes and — seeking a consensus — they reshape their own policy preferences in anticipation of what they know other committee members will want.
We were curious what people who served on the Board of Governors and FOMC had to say about this debate over the Fed chair's influence over votes.
Lael Brainard served as a member and then vice chair of the Board of Governors between 2014 and 2023, under the leadership of Fed chairs Janet Yellen and Jerome Powell. She says it's true that FOMC members can influence the Fed chair's policy preferences through their public speeches, conversations, and so on.
But, in her experience, when it came close to the FOMC meeting, the chair usually had clear preferences for what they wanted the Fed to do. They would call her and other members on the phone in the run-up to FOMC meetings to get a sense of what they were thinking and how they would likely vote on the chair's proposed actions. However, they didn't do this with "a blank slate," she says. "It was really about getting people on board with their preferences." In other words, they lobbied the FOMC to get what they wanted.
Blinder had a similar story about Alan Greenspan. "He had firm opinions most of the time," Blinder says. "He let you know what those opinions were before you voted, so it wasn't like everyone's gonna vote and then, 'Oh, Greenspan had a different view.' No, he let everybody know. And so the choice you had when it came time to vote was whether you were gonna defy this deeply respected and exalted chairman or go along with him, even if you didn't quite agree with him."
In short, all the sources we spoke to agreed that the Fed chair exercises a ton of power over both the FOMC and the Board of Governors, even though much of that power can't be found formally written down in the law.
So where does the Fed chair's power come from?
So why, if the Fed chair is only one of many votes in a crucial financial institution that shapes our economy, does he or she seem to have so much power over it? There are at least a few important reasons.
First, the Fed chair has power over the Fed's communications. Fed chairs are the ones who hold the important press conferences. They are the ones, who, by law, testify before Congress. They are the "most visible figure at the Fed," Wessel says. Call it the economic bully pulpit.
Imagine a Fed chair going in front of microphones and cameras, and saying something like, "Inflation is out of control, and there's nothing we can do about it." Markets would go bananas. People would be crying about their 401Ks. There would be pandemonium on Wall Street. Fed chairs speak for their institution, and that institution really matters for the economy. Their mouths have power — and the other board and committee members know it. That may be one reason why they tend to defer to the Chair.
Second, the Fed chair isn't just the chair. He or she is effectively the Fed's CEO, says Richardson. That is spelled out in the law: the Federal Reserve Act says the chair is the Fed's "active executive officer." And just like any other CEO, the Fed chair has broad authority over day-to-day management — including significant influence over hiring, firing, and promotions among the Fed's staff. They are the staff's boss. And that authority can help Fed chairs shape which data, analyses, and reports other Fed authorities see when they vote on crucial matters.
In the run up to FOMC meetings, Brainard says, committee members are given what's known as "The Tealbook." Basically, it's a report, put together by the Fed's economists, that contains data, charts, and deep-dive analyses about the direction of the economy that are relevant for the votes FOMC members have to make.
Brainard says this report was always super high-quality. It's not like Fed chairs get staff to cook the books or anything like that. The data is real. "But the data lends itself to different interpretations, particularly at turning points in the economy," she says. And the way the data is presented can sometimes matter. Through their sway over the staff, the chair can use the Tealbook and other staff reports to influence how members vote.
Being the Fed's chief executive also gives the Fed chair the power to make small decisions, like "who gets parking, and who gets to park where," Richardson says, and big decisions, like who serves on which committees. In that recent study by Howes and colleagues, they hypothesize that FOMC dissenters are met with "punishment" by the chair that reduces their influence in the institution. In other words, the chair has some carrots and sticks that they may use to nudge members in directions they want.
Additionally, Fed chairs tend to serve much longer on the Board and FOMC than other members. While Governors can serve up to 14 years on the Board, most spend much less time than that. The longer tenure, Richardson says, may increase the chair's gravitas and institutional knowledge, and it may be another reason why Board and FOMC members defer to them.
Third — and importantly — the Fed chair sets meeting agendas, including proposed policy actions. "The Federal Open Market Committee meetings and the Board meetings are not just free-for-alls where anybody brings up anything they want," Blinder says. "There's an agenda, and they stick to the agenda — and the agenda is set by the chair."
One prominent example of why agenda control matters came after the 2008 financial crisis, when Ben Bernanke was Fed chair. Basically, the Fed cut interest rates all the way to zero — and then it couldn't push them any lower to stimulate the economy. The Fed's conventional weapon had lost its power. So Bernanke had to develop and put on the agenda an entirely new, unconventional weapon — "Quantitative Easing" (QE) — to try and get the economy growing again (QE was basically the Fed buying a boatload of mortgage-backed and other securities to try and push down longer-term interest rates).
Bernanke was uniquely qualified to lead this agenda, because he had spent years studying things like the Great Depression as well as Japan's more recent struggles with near-zero interest rates, which were instances where central banks found their traditional policy levers no longer worked.
Wessel had a fun way of describing this. " One way to think about it is Ben Bernanke was like the guy who was studying dinosaurs, and everybody said, 'Well, that's intellectually interesting, but who cares?' And then one day on the horizon, a Tyrannosaurus Rex shows up — and they were like, 'Well, thank God the guy in charge knows something about dinosaurs.'"
This gave Bernanke extra gravitas. And, combined with his institutional authority and powers — he was able to put unconventional monetary policies on the agenda. While those policies proved to be controversial, he was able to convince strong majorities on both the Board of Governors and the FOMC to pursue them during a time of crisis. (Side Note: Trump nominee Kevin Warsh once served on the Fed Board and the FOMC. He voted for early rounds of QE, but later became an influential critic of the policy).
Finally, and relatedly, the Fed chair has shown an incredible power to build consensus within the decision-making bodies of the Fed. We alluded to this before when we shared the incredible fact that the Fed chair has never been outvoted on the FOMC and has rarely been outvoted at the Board of Governors.
One big reason for this consensus, Blinder says, is a tradition of deferring to the chair. "The belief on the Fed is that it's damaging to the institution to defy the chair."
Brainard agreed that there's an institutional norm on supporting the chair, especially in difficult moments for the economy. "There is — for people like myself — a desire to show some unity and support for the chair — even if you might have modest differences in terms of where you think that outcome should be," Brainard says.
Fed officials are public servants, and they know their actions and words can have huge effects on the economy. The Fed is most powerful and effective when it speaks with one voice. Speaking with one voice is a clear and powerful signal to markets, and officials like Brainard have deferred to the chair because they believe it helps "shore up the strength and credibility of the institution."
For example, Brainard says, back in 2015, when she was fresh on the Board of Governors, she faced a difficult decision about whether to support raising interest rates. Fed Chair Janet Yellen had "put in place a lot of communications and work to prepare to raise rates for the first time since the Great Financial Crisis," Brainard says. At the same time, markets were looking a tad bit shaky. "So I thought it was the wrong moment to raise rates," she says. "But because it was so significant that it was the first interest rate rise since the Great Financial Crisis, I thought it was very important to show solidarity and support of the chair, defer to her judgment and move forward with that."
Part of this tendency of members to defer to and support the chair depends on who is actually selected to serve in these positions. For example, President Trump appointed Stephen Miran last year, and since then Miran has defied the tradition of consensus and become a consistent dissenting vote against Chairman Jerome Powell, pushing the Fed to more forcefully cut interest rates.
A new Fed chair
So, yeah, historically, the Fed chair has really mattered for the actions of America's central bank. But much of their authority boils down to a kind of soft power, which is a product of tradition, norms, and the social and political dynamics of serving in these bodies. In extreme circumstances — like, say, if a president tried to strip the Fed of independence and forced them to pursue inflationary policies — that could change.
"The chairman depends on the loyalty and respect of the other people on the FOMC," Wessel says. "And if we had a chairman who was really out to lunch, then I think we would learn the chair's power is limited by his ability to command the respect of the committee. So the challenge that every new Fed chair has coming in is that the institution is loyal to the chair. They give you the benefit of the doubt, but if it turns out that they think you're nuts or irresponsible, they can turn on the chair and make it impossible for him to get his way."
In other words, within the internal structure of the Fed lies a dormant power that could be awakened.
Over much of the past year, President Trump has been pressuring Jerome Powell to lower interest rates and many believe it's not a coincidence that there's now a federal criminal investigation of cost overruns in a major Fed building renovation project pursued under his tenure. Indeed, Jerome Powell released a statement and said, "The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President." Trump has also sought to fire Biden appointee Lisa Cook from the Board of Governors. It's all been pretty unprecedented, and, within that context, the nuances of the Fed's structure have gotten more focus.
For example, the fact that the Fed chair doesn't, by law, have to be the head of the FOMC was cited by some observers as a potential way for the Fed to safeguard their independence and fight President Trump's push to get them to lower interest rates. Many fear that handing the Fed's power to President Trump — or, really, any president — would ultimately result in worse inflation and be damaging to the economy (check out this Planet Money Spotify playlist of episodes about Fed independence).
Jason Ma, writing over at Fortune, stressed that Jerome Powell's term as Fed Governor ends in 2028, and, even if he was replaced as Fed chair by a Trump ally who wanted to push rates to the floor, it would be possible for Powell to continue serving as FOMC chair and command the necessary majority to fight that.
However, President Trump's recent nomination of Kevin Warsh seems to have tamped down on this talk.
" This view of a possible civil war on the FOMC has been greatly diminished by the nomination of Kevin Warsh," Blinder says.
That's because Warsh previously served on the Fed's Board of Governors and FOMC, has a track record of caring a lot about runaway inflation, and he's well respected. Plus, Blinder says, he's personable and isn't the type of person who would bang on the table at FOMC meetings.
For many, Trump's selection of Warsh was surprising, considering the president has been urging a more dovish stance at the Fed for significantly lower interest rates — and Warsh has a reputation as an inflation hawk.
That said, nobody knows what sort of conversations Warsh has had with President Trump, whether he would have a stiff backbone in the face of presidential pressure, and what decisions Warsh will ultimately make if he gets approved by the Senate and takes the big job.
One thing is for sure though: the job he does will significantly matter for all of us.
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