Fed’s Kugler to step down next week

The Federal Reserve Board will have its first vacancy of President Donald Trump’s second term in office. 

Fed Gov. Adriana Kugler will step down from the central bank effective next Friday. She will resume her duties as a professor at Georgetown University for the school’s upcoming fall semester.

“It has been an honor of a lifetime to serve on the Board of Governors of the Federal Reserve System,” Kugler said in a prepared statement. “I am especially honored to have served during a critical time in achieving our dual mandate of bringing down prices and keeping a strong and resilient labor market.”

Kugler’s resignation — submitted in writing to Trump on Friday — will create an opening on the board of governors roughly six months ahead of schedule. Her term was set to expire on Jan. 31 of next year and the president had made clear that he did not intend to re-appoint her to a full 14-year term.

The move will give Trump his first chance to appoint a Fed governor since he returned to the White House earlier this year, potentially providing an opportunity to name his pick to succeed Jerome Powell as Fed chair next spring. Powell’s term as chairman runs through May. 

Several names have been floated about who the president might tap to lead the Fed board, including two of his current cabinet members: Treasury Secretary Scott Bessent and National Economic Council Director Kevin Hassett. Former Fed Gov. Kevin Warsh is also in the running along with two board holdovers from Trump’s first term: Gov. Christopher Waller and Fed Vice Chair for Supervision Michelle Bowman.

Kulger’s resignation comes at a tumultuous time for the Fed and Powell, as the central bank and its leader face mounting scrutiny from the president and his allies over the handling of monetary policy and Fed operations, namely cost overruns related to the renovation of the Fed’s headquarters in Washington, D.C.

Designating the next Fed chair ahead of schedule could give Trump the opportunity to test the concept of a “shadow chair.” Bessent proposed the idea last year as a means of influencing the monetary policy outlook over the medium- and long-term by having the next-appointed chair giving forward guidance. 

Yet, such a ploy runs the risk of creating tensions within the current board and Federal Open Market Committee while confusing the broader public. The move could be especially fraught when considering financial markets are already forecasting multiple rate cuts next year.

The resignation announcement also arrives at an uncharacteristically divisive time for the FOMC. On Wednesday, Bowman and Waller opposed the committee’s decision to keep interest rates unchanged for the fifth consecutive meeting this year, preferring a quarter-point rate cut instead. It was the first time two board members dissented from an FOMC vote in more than 30 years. Kugler was absent from the meeting and did not cast a vote.

Despite — or perhaps because of — her lame duck status on the board, Kugler had become one of the more outspoken members in recent months on matters of both monetary policy and regulation. 

A labor economist by training, Kugler has been a vocal proponent of keeping interest rates unchanged until the impacts of new trade and immigration policies become clear. Her arguments have been contrasted against those of Waller, who has made the case for weeks that labor market softening calls for less restrictive monetary policy.

Kugler has also voted against and issued critical statements on multiple regulatory proposals from the Fed this year, often joining fellow governor — and former vice chair for supervision — Michael Barr in questioning the central bank’s recent moves to adjust capital standards and supervisory practices.

Kugler is the most recent addition to the Federal Reserve Board, having joined a little less than two years ago. President Joe Biden appointed her to fill the opening created by the departure of then-Fed Vice Chair Lael Brainard. 

Along with her professorship at Georgetown, Kugler’s pre-Fed resume includes stints as executive director at the World Bank and chief economist at the U.S. Department of Labor during the Obama administration.

Powell issued a statement thanking her for her service to the Fed and the country.

“I appreciate Dr. Kugler’s service on the Board and wish her very well in her future endeavors,” Powell said. “She brought impressive experience and academic insights to her work on the Board.”