Meanwhile, key Republican senators had signalled they were eager for a showdown over Barr, including Senator Tim Scott of South Carolina, who is set this week to become chairman of the Senate Banking Committee, which oversees the Fed. “I stand ready to work with President Trump on ensuring we have responsible financial regulators at the helm,” Scott said in a statement, released ahead of Monday’s announcement, that criticised Barr’s tenure at the Fed. Scott said Barr “failed to meet the responsibilities of his position”.
A Biden appointee, Barr has served in the role since July 2022, helping to oversee the Government’s response to the failures of Silicon Valley Bank and two other big banks beginning in March 2023. He previously served as an Obama-era Treasury Department official and helped to craft the 2010 Dodd-Frank financial law that created his current Fed position. His term in the role doesn’t expire until July 2026, and he told House politicians last month that he had no plans to leave early.
While banking lawyers and former regulators say Trump faced an uphill battle defending any demotion in court, the upshot of this particular fight is that it could be representative of the next four years, a preview of Trump’s bare-knuckled and unorthodox approach to Washington and institutions such as the Fed.
Trump transition officials didn’t respond to requests for comment ahead of Barr’s announcement.
The move to demote Barr would have amounted to an unprecedented intrusion on the day-to-day functioning of the Fed Board of Governors, former Fed officials said. If the President has the power to remove a vice-chairman, that suggests he could do the same to anyone in a leadership role, including the chairman, said Scott Alvarez, the Fed’s former general counsel.
“They’re taking a central strike at the Federal Reserve,” Alvarez said. “This is a serious question with serious ramifications.”
Powell, for his part, told reporters after the election that the President doesn’t have the authority to demote top officials. “Not permitted under the law,” he said.
Trump’s GOP allies in the Senate, including Scott, Senator Thom Tillis (North Carolina) and Senator Kevin Cramer (North Dakota), said Barr should have been demoted because of supervisory failures before the large bank failures in 2023. They also attacked Barr over his efforts to rein in large banks with stringent capital requirements - a plan the industry aggressively resisted and the Fed agreed to water down.
“President Trump should look for new supervisory leadership to ensure the Fed is properly meeting these important functions,” Tillis said in a statement before Barr’s announcement Monday.
Trump hasn’t spoken directly on the issue but has said repeatedly that he wants the White House to have more say in the operations of the Fed, particularly regarding its decisions on monetary policy. During his first term, Trump toyed with the idea of seeking to fire Powell, while advisers told him he lacked the legal authority to do so.
Trump officials have said they don’t plan to fire Powell but also won’t renominate him.
The law that set up the Fed says a President is allowed to fire Fed governors only for cause – generally malfeasance of some kind rather than a policy dispute. It is silent on whether the President can demote a top official from a leadership role. The issue has never been litigated.
Barr will continue to serve on the central bank’s board as a governor but will no longer set the broad vision for the regulation of big banks and other financial firms. Although Barr’s term as vice-chaimanr was set to lapse in July 2026, his term on the Fed board goes until early 2032.
Pressure from Senate Republicans is notable, as their support would be required to replace Barr. Unless one of the current Fed governors leaves early, Trump will have to elevate one of the other sitting governors to the vice-chairmanship. Two of those officials, Michelle Bowman and Christopher Waller, are Republicans who could be tapped to replace Barr in his leadership role.
Some top Republicans, including Scott, voted for Barr’s confirmation in 2022, reasoning he was qualified for the post, despite significant policy disagreements with the Democratic nominee.
The vote came after contentious nomination battles in which Republicans torpedoed two separate Biden nominees for top banking positions; both candidates withdrew after it became clear they would not be confirmed. Republicans had little appetite for another drawn-out slugfest over Barr. Ahead of the vote, Randal Quarles, Barr’s Republican predecessor at the Fed, privately vouched for Barr’s competence and intelligence to Senate Republicans, according to people familiar with the deliberations.
