UBS: Federal Reserve Governor Quarles unexpectedly resigns, Powell's succession battle kicks off early

According to UBS economists, the unexpected resignation of Federal Reserve Governor Christopher Waller last Friday has forced the selection process for Chairman Powell's successor to begin earlier than expected. This vacancy could lead to a restructuring of the Federal Reserve leadership much sooner than anticipated.

UBS economist Amanda Wilcox wrote in a report last Friday: "The early vacancy of Waller's seat will accelerate the selection process for the next chairman." The Federal Reserve had previously announced that Waller would officially leave on August 8. This governor, who took office in September 2023 and was originally set to serve until January 2026, was absent from the Federal Open Market Committee (FOMC) meeting last week for personal reasons.

Waller's early departure comes at a critical moment as the White House is deliberating on the final succession plan for Powell.

Wilcox stated: "We previously expected that after Waller's term ended, the successor to Chairman Powell would first be appointed to fill his vacant seat. Then, when Powell's term expires in May 2026, this successor would be promoted to chairman."

President Trump has long made his dissatisfaction with Powell public. Amid concerns that Trump's tariff policies could trigger a new wave of inflation during the Biden era, Powell has consistently resisted the government's aggressive calls for interest rate cuts. Trump has not only publicly criticized Powell for keeping interest rates at levels that hinder economic growth but has also privately discussed the possibility of firing or downgrading him—an unprecedented challenge to the legal and political independence of the Federal Reserve.

UBS analysis points out that since the Federal Reserve chairman must be a current governor, Waller's early departure gives the White House the opportunity to arrange a successor before Powell's term ends. This helps avoid the complex situation that could arise if Powell chooses to remain until 2028 (when his governorship officially ends).

"The White House can now submit nominations to the board immediately," Wilcox said, "but the long-term coexistence of the successor with the current chairman could complicate policy communication and exacerbate tensions within the FOMC."

This tense situation has already begun to surface—this week, the FOMC meeting saw two dissenting votes, marking the first time since 1993 that two governors voted against in the same meeting.

As for Powell's potential successors, there has been much speculation in the media and policy circles. Wilcox noted: "Several media outlets, including The Wall Street Journal's report in June, have disclosed a list of candidates, including Treasury Secretary Scott Pruitt, National Economic Council Director Kevin Hassett, and former governor Kevin Warsh. We believe that one of the dissenters who supported a 25 basis point rate cut, Governor Waller, may also be in the running."

Although UBS has not predicted the government's final decision, Wilcox emphasized: "We look forward to monitoring this process, especially after today's resignation event has clearly accelerated the timeline." Waller's early departure has left seven vacant seats on the Federal Reserve Board, and the White House currently faces urgent pressure to nominate a candidate who can take over the chairmanship by 2026 at the latest