Choosing Mr. Powell would reflect a judgment by the Trump administration that it can loosen Wall Street’s chains even without the enthusiastic participation of the next Fed chairman. Mr. Trump likes Ms. Yellen’s approach to monetary policy, which has yielded strong economic growth and low unemployment, and aides including Mr. Mnuchin have argued that appointing Mr. Powell is the best way to maintain continuity while satisfying Republican demands that Ms. Yellen be replaced, according to people familiar with the internal discussions who were not authorized to speak publicly about them.
Mr. Trump has already chosen Randal K. Quarles to lead the push for deregulation at the Fed. Mr. Quarles was sworn in earlier this month as the Fed’s first vice chairman for supervision, a position created after the financial crisis to oversee the Fed’s work on regulatory issues.
Administration officials have also told some conservatives that Mr. Powell is more sympathetic to deregulation than may be suggested by his public comments, according to a person who participated in one such meeting, and described it on condition of anonymity.
But some independent analysts and congressional Republicans argue that choosing Mr. Powell would be a gamble.
Karen Shaw Petrou, managing partner at Federal Financial Analytics, which tracks regulatory issues for financial industry clients, said that she expected Mr. Powell would defer to Mr. Quarles. “That said,” she continued, “Powell will generally favor course corrections, not redirections.”
Credit Ted S. Warren/Associated Press
Mr. Powell’s regulatory views are also raising eyebrows among conservatives on Capitol Hill. Mr. Powell joined the Fed in 2012 but, because of a procedural quirk, he had to be confirmed again in 2014. Twenty-three Republicans voted against him, with several citing his record of support for new financial regulations; all but two of those senators are still serving.
“Senator Scott is looking for fresh leadership at the Federal Reserve, and Mr. Powell would have to answer serious concerns both old and new at any potential nomination hearing he might have before the Senate Banking Committee,” said a spokesman for Senator Tim Scott, a South Carolina Republican who voted against Mr. Powell’s confirmation.
If Mr. Trump does not choose Ms. Yellen, she would become the first person in the Fed’s modern history to complete a term as chairman without being nominated for a second. A major reason is that the White House does not share her views on financial regulation. In a speech in August, she warned against forgetting the lessons of 2008.
“The events of the crisis demanded action, needed reforms were implemented and these reforms have made the system safer,” she said.
Mr. Taylor’s outspoken critiques of the Fed’s economic stimulus campaign have won him the backing of conservatives including Vice President Mike Pence, according to the people familiar with the internal discussions. But his comments about regulatory issues have been less frequent and less critical of regulation. He has said that banks were allowed to take too many risks before the crisis and, in a 2015 interview, he said he had “no problem” with requiring the biggest banks to raise more capital after the crisis.
Mr. Trump and Republicans in Congress argue that excessive financial regulation, much of it created by the 2010 Dodd-Frank Act, is inhibiting economic growth.
The Trump administration in June released a plan for reducing regulation, much of which can be carried out by the Fed and other regulators without legislation. The changes would exempt smaller banks from many postcrisis regulations, and loosen restrictions on larger banks. That would let banks borrow more freely, and take more risks with that money.
At a hearing a few weeks after the plan was released, Mr. Powell offered a tepid review. “I see it is a mixed bag,” he said. “There are some ideas in the report that make sense, maybe not as expressed there, but it would enable us to reduce the cost of regulation without affecting safety and soundness.” But, he added, “There are some ideas that I would not support.”
Since joining the Fed in May 2012, Mr. Powell has voted in favor of every action to tighten regulation the Fed has undertaken. But he has sometimes expressed concerns in internal discussions about the effects of those decisions, and about the aggregate weight of so many new regulations.
At the June hearing, he said that there were clear opportunities for improvement.
“The whole idea is to preserve the significant core reforms that were made but to go back and clean up our work,” he said.
Specifically, Mr. Powell wants to overhaul the Volcker Rule, which is intended to prevent big banks from making certain kinds of risky investments with their own money. Mr. Powell and other Fed officials have long regarded the rule as costly and ineffective, in part because they say it duplicates other measures aimed at limiting risk-taking.
Credit Joshua Roberts/Reuters
He said regulators were working on revisions that would limit its application to smaller banks and loosen the strictures on larger banks.
Mr. Powell also expressed support for cost-benefit analysis of proposed rules, an idea backed by the Trump administration and Republican lawmakers. He said the Fed was pushing to improve its analysis of regulatory costs. “We have an obligation to make our regulation no more costly than it needs to be,” he said.
And he has endorsed greater transparency regarding the Fed’s annual “stress tests” of large banks, aimed at assessing their ability to weather economic downturns.
But on the issue at the center of the debate over regulation, Mr. Powell broke ranks with the administration. Banking regulators have significantly limited the use of borrowed money as a source of funding, requiring banks to raise more capital.
The Trump administration has proposed a host of changes to loosen those restrictions. Mr. Powell said he supported the current regulations.
“I happen to think we’ve gotten it about right,” he said.
Importantly, the White House expects Mr. Quarles, and not the next Fed chairman, to take the lead role in sorting out these questions.
Mr. Quarles’s job was created by the Dodd-Frank Act to sharpen the Fed’s focus on regulation. At his confirmation hearing in July, he echoed Mr. Powell’s characterization of postcrisis regulation as a rough draft that required editing.
“Regulatory policies enacted since the financial crisis have improved the safety and soundness of the financial system,” Mr. Quarles said. “But as with any complex undertaking, after the first wave of reform, and with the benefit of experience and reflection, some refinements will undoubtedly be in order.”
Mr. Powell and Mr. Quarles are friends. The two men were colleagues at the Carlyle Group, a private equity firm based in Washington.
Mr. Trump can also stock the Fed’s board with officials committed to deregulation. There are seven seats on the board, and Mr. Trump can quickly fill as many as six of those seats with his own nominees, assuming Ms. Yellen steps down in February.
The presidents of the regional reserve banks, some of whom are proponents of financial regulation, only vote on monetary policy.