Trump insists on investigating Powell, GOP internal defection: no withdrawal of case will block Fed new chair Waller's nomination

Trump insists on launching a criminal investigation against Federal Reserve Chair Jerome Powell, while Republican Senator Tillis threatens to cross party lines to block the next chair nomination, potentially causing a power vacuum at the Fed and increasing market uncertainty.
(Background: Trump nominated Kevin Warsh to lead the Federal Reserve, with a June rate cut probability approaching 50%)
(Additional context: Trump’s favored Fed Chair Kevin Warsh commented on Bitcoin: It’s not a substitute for the dollar, but a “supervisor” of monetary policy)

Last week, U.S. President Trump officially announced the nomination of former Federal Reserve Board member Kevin Warsh as the next Fed Chair, to succeed Jerome Powell whose term ends this May, but now the decision faces turbulence.

On Monday, Trump again told reporters he wants federal prosecutors to “get to the bottom” of Powell, but it’s clear to the market that this has little to do with corruption or renovation; it’s a naked display of power, with one goal: to regain control of the printing press (rapid and large rate cuts).

In the face of Trump’s aggressive interference with the Fed’s independence, even Republican Senator Thom Tillis publicly threatened: if Trump doesn’t withdraw the case, he will team up with Democrats to block Kevin Warsh, Trump’s preferred candidate, from getting through.

The Key Vote in the Senate

The appointment of the next Fed Chair still requires confirmation by the U.S. Senate. Currently, the Senate Banking Committee has 13 Republicans and 11 Democrats, seemingly giving Republicans a solid advantage. But if Tillis votes against, the vote tally instantly becomes 12-12, resulting in a deadlock. Warsh’s nomination could be blocked outright in the committee and never reach a full Senate vote.

This game of chicken: Trump bets that Tillis won’t dare to truly sabotage his preferred candidate; Tillis bets that Trump cares more about installing his own person, Waushe, than about killing a candidate who has only three months left in office.

Both sides are waiting for the other to make the first move, but time is not on anyone’s side. If the deadlock isn’t broken by May, the Fed’s leadership could plunge into unprecedented chaos. The market’s biggest fear has never been bad news, but uncertainty, which could further amplify volatility.

Watch the Critical Moment in May

The next three months will be crucial. If by May the investigation isn’t withdrawn and Waushe isn’t approved, markets should prepare for potential volatility. The unresolved Fed leadership position signifies a lack of direction for the world’s most important monetary policy institution, and this uncertainty could cause sharp swings across all asset classes.

This is no longer just a U.S. domestic issue but a systemic risk affecting global financial markets. When a president can use criminal investigations to threaten a central bank chief, the so-called “independence of monetary policy” becomes just a slogan. The dollar’s credibility as the global reserve currency is, to some extent, being eroded by this political tug-of-war.