The FOMC holds the authority to select its chair and may retain Powell—unless Trump is permitted to remove him from the Fed by the DOJ investigation and Supreme Court.

Justice Department Investigation Challenges Fed Independence

A criminal investigation by the Justice Department targeting Federal Reserve Chair Jerome Powell has the potential to push the central bank to defend its autonomy more vigorously.

On Sunday, Powell disclosed that the DOJ had issued grand jury subpoenas to the Fed, threatening possible charges related to his Senate testimony last June about renovations at the Fed’s headquarters.

Powell’s strong public criticism of the investigation suggests he is prepared to resist, and he may continue to play a key role in setting interest rates—even if President Donald Trump appoints a new chair more aligned with his agenda.

This is possible because Powell holds two important positions: he leads both the Fed’s Board of Governors and the Federal Open Market Committee (FOMC).

Although it is customary for the same person to chair both the Board and the FOMC, the Fed’s own documentation notes that this arrangement is not required.

According to the Fed, “By law, the FOMC determines its own internal organization, and by tradition, the FOMC elects the chair of the Board of Governors as its chair and the president of the Federal Reserve Bank of New York as its vice chair.”

While the president nominates and the Senate confirms Fed governors, including the chair, the FOMC itself selects the chair of the rate-setting committee. The FOMC consists of the seven governors, the New York Fed president, and four other regional Fed presidents who rotate into voting roles.

The Fed’s leadership is known for fiercely protecting its independence from political interference. This is where legal requirements and tradition could diverge, potentially resulting in different individuals leading the FOMC and the Board.

Distinction Between FOMC Chair and Board Chair

Here’s how such a split could occur:

• The FOMC selects its chair at the first meeting of each year, with the 2026 meeting set for January 27–28. Only current FOMC members are eligible for the role.
• Powell’s term as Board chair ends on May 15, but he remains a governor until January 2028. This means he could, in theory, continue as FOMC chair if he chooses not to resign.
• The FOMC could vote again later in the year after a new Board chair is appointed, but such a revote is not mandatory, according to Robert Eisenbeis, former research director at the Atlanta Fed.
• Traditionally, the New York Fed president nominates the Board chair as FOMC chair, but this is not a binding rule.

If the FOMC does not hold another vote, the next opportunity to select a chair would be at the first meeting of 2027. Since Powell’s term as governor runs until January 2028, a similar scenario could unfold the following year.

Eisenbeis notes that, to his knowledge, the Fed has never had separate individuals serving as FOMC chair and Board chair, and it is unclear which position would take precedence if that were to happen.

Lisa Cook, the Supreme Court, and the Future of Fed Leadership

However, this scenario would not be possible if Trump removes Powell from the Board. Senator Elizabeth Warren, a member of the Senate Banking Committee, warned of this risk on Sunday, accusing Trump of seeking to oust Powell to further his control over the central bank.

The DOJ’s investigation is also relevant as the Supreme Court weighs Trump’s effort to remove Fed Governor Lisa Cook over allegations of mortgage fraud, which she denies and is contesting in court. A decision from the justices is expected soon.

Last year, the Supreme Court ruled that Fed officials have special protections and cannot be dismissed except “for cause,” which has typically meant misconduct or neglect of duty.

Depending on the outcome of Cook’s case, the Supreme Court’s decision could influence Trump’s ability to act against Powell as the DOJ’s probe continues.

Trump has indicated he already has a replacement in mind for Powell. Leading contenders include Fed Governor Christopher Waller, National Economic Council Director Kevin Hassett, and former Governor Kevin Warsh.

However, opposition from lawmakers responsible for confirming nominees could delay the process. Even after a new chair is installed, that individual holds just one vote among the twelve members of the FOMC.

Ed Yardeni, president of Yardeni Research, observed in July that regardless of who becomes the next Fed chair—whether a Trump ally or not—they will need to collaborate with the rest of the consensus-driven FOMC.

If a new chair is too far out of step with the committee’s majority on monetary policy, they could be overruled by the other members.

Yardeni cautioned, “Such a scenario would significantly diminish the authority of the Fed chair and could spark concerns about internal divisions within the central bank.”

This article was originally published on Fortune.com.