By Ann Saphir and Michael S. Derby (Reuters) – Federal Reserve Vice Chair of Supervision Michael Barr’s early resignation on Monday from his regulatory oversight position presents an initial challenge for Donald Trump in shaping the U.S. central bank during his second presidential term. Barr announced he will step down from his leadership role on the Fed’s Board of Governors on Feb. 28, remaining as a governor until January 2032. This move eliminates an immediate opportunity for Trump to influence interest rate decisions by appointing a new Fed board member. However, it allows him to potentially promote an existing board member to oversee the Fed’s banking regulation more in line with his preferences, avoiding a contentious legal battle over political control of the position. Barr is only the second person to hold the role of Fed’s vice chair for supervision, established post the 2007-2009 financial crisis and regulatory overhaul that ensued. “This resignation may set a precedent for the political nature of the vice chair for supervision,” said Steven Kelly, of Yale School of Management’s Program on Financial Stability. It is likely that the role will align with presidential administrations, similar to leadership roles in other banking agencies. Fed Governor Michelle Bowman, known for opposing Barr’s stringent regulatory approach, is a probable candidate for his successor under the new Trump administration. Barr’s decision to remain a Fed governor, maintaining his voting rights on interest rates, might help safeguard the central bank’s independence in monetary policy, crucial for controlling inflation. There is speculation that the Fed, led by Chair Jerome Powell, may collaborate with Republicans on regulation to safeguard monetary policy independence. However, concerns have been raised by Graham Steele, a Stanford Law School fellow, regarding the implications of Barr’s resignation on the central bank’s long-term independence and the perception of political influence over the Fed. Trump’s past criticism of Powell’s rate decisions raised questions about his potential intent to replace the Fed chief, a move Powell has deemed unlawful.
Advisers have been exploring avenues to bolster the White House’s sway over the Federal Reserve, potentially by removing Barr from his leadership position. Any such move “could also establish the precedent for a president to dismiss the Fed’s chairman,” noted Brian Gardner, Stifel’s chief Washington policy strategist. “That scenario has been dodged, at least for now.” (Reporting by Ann Saphir; Editing by Paul Simao)
