The unexpected resignation of Federal Reserve Governor Kugler last week resurfaced a situation that appeared to be fading but could have important consequences for how the Fed conducts policy.

With a vacant seat on the influential Federal Reserve board, President Trump now has some strategic options, including the possibility of appointing a so-called shadow chair whose job would be to serve primarily as a firebrand until a successor to current Chairman Jerome Powell is named.



That, in turn, raises the tantalizing possibility that an institution historically known for its collegiality and ivory-tower approach to policy will now have to contend with sudden political intrigue.

Will Trump use the post to nominate a troublemaker to torment Powell, who is often fiercely criticized by the president, or will he pursue a different tack, focusing more on the Fed's long-term direction?

"The president has two options," Guha, Evercore ISI's global head of policy and central bank strategy, said on Wednesday. "One is, he can appoint someone on an interim basis to fill the remaining four months of Kugler's term, or he can decide to condense the process and pick his choice now."

Kugler's decision to leave the Fed without prior notice would be significant under normal circumstances, but the nature of her position on the board raises the stakes.

Former President Biden appointed Kugler to the position in 2023. Kugler served less than two years of her predecessor's unexpired term and had only about six months left before her predecessor left office, which gave her the months needed to be confirmed.

Given the Senate's schedule, the new governor would serve for a maximum of three to four months, and if Trump decides to reappoint him, he would have to undergo another confirmation hearing.

While Mr Trump might be inclined to go the shadow chair route – a path Treasury Secretary Besant has advocated for in the past – it may not be a satisfactory option for the nominee.

Guha said the shadow chairman "will still be just one among many and will not have the powers of the chairmanship".