Whether deliberate or accidental, any indications Jerome Powell offers regarding his economic projections carry the capacity to influence markets. Although the head of the Federal Reserve has repeatedly affirmed that his sole concerns are the 2% inflation target and achieving full employment, he will also be mindful of Wall Street's reactions.
TL;DR
- Jerome Powell's economic projections influence markets, but President Trump will soon announce his Fed chair selection.
- Potential candidates include Kevin Hassett, Kevin Warsh, Chris Waller, Michelle Bowman, and Rick Rieder.
- Kevin Hassett is the front-runner, seen as dovish and aligned with Trump's preference for lower interest rates.
- The announcement could create a "shadow Fed chair," potentially diminishing Powell's influence before his term ends.
However, it won't be long before analysts and investors shift their focus; President Trump is poised to reveal his selection.
“I know who I am going to pick,” Trump told reporters on Air Force One on his way back to Washington on Sunday night. “We’ll be announcing it.”
As Chair Powell, who was nominated by Trump, approaches the conclusion of his tenure next spring, there has been considerable conjecture throughout 2025 regarding his successor. The White House has openly shared potential candidates under consideration: “two Kevins” (comprising Trump's top economic advisor Kevin Hassett and former Fed governor Kevin Warsh), along with several individuals from within the Federal Reserve. These have encompassed current members of the Federal Open Market Committee, including governors Chris Waller and Michelle Bowman. Rick Rieder of BlackRock has also been mentioned as a possibility.
Treasury Secretary Scott Bessent has been persistently approached for the role, who told his boss but he is unwilling to depart from his present cabinet post.
Currently, Hassett is ahead in the surveys as the individual most probable to gain Trump’s endorsement, with odds on prediction markets platform Kalshi registering at 79%. Following him is Warsh with 13%, and governor Waller at 8%.
The intense excitement surrounding the appointment has been amplified by Trump's solitary conflict with Powell throughout this year. The president had previously suggested removing Powell from his position, only to quickly reconsider when financial markets reacted with unease due to concerns about the Federal Reserve's autonomy, though doubts regarding the central bank's independence have persisted since then.
The turmoil isn't concluded: Upon the declaration of the Federal Reserve's future chairperson, will Powell or the individual taking his place command greater influence with financial markets? The incoming official will undoubtedly possess more backing within the White House compared to the Federal Reserve's present administration, but it's yet to be determined if they'll be met with a similar reception from within the institution itself.
Casting a shadow
Market participants are also anticipating Trump's selection of the next chair, expected in 2025, aligning with sentiments prevalent on Capitol Hill throughout the year. By making this choice, Trump will, intentionally or otherwise, implement a concept proposed by Bessent earlier this year: a “shadow” chair looming over Powell during his concluding Federal Open Market Committee sessions.
Bessent had initially proposed that the nomination be announced twelve months prior to Powell's departure in May, stating: “You could do the earliest Fed nomination and create a shadow Fed chair. And based on the concept of forward guidance, no one is really going to care what Jerome Powell has to say anymore.”
Commentators are already observing the path of American fiscal strategy under a new leader, even prior to a selection being declared: “New Fed leadership could increase easing bias,” stated Mark Haefele, the global head of investment strategy for wealth management at UBS, in a communication to patrons on Monday. He further remarked: “Hassett is viewed as dovish on Fed policy and closely aligned with the Trump administration, which favors lower rates. If indeed appointed, he would likely reinforce market expectations for a more aggressive rate-cut cycle, adding further downward pressure on the dollar.”
Similarly, UBS's lead economist, Paul Donovan, was also looking forward, informing clients in an audio update today that the Senate probably won't disrupt things by Refusing Trump's appointment.
“Although there is quite a wide range of talent among the pool of candidates, none of the names suggested are so radical as to induce the Senate to take an independent view,” added Donovan.
Hassett emerging as a front-runner, added Donovan, “might give parallels” to the disastrous alliance between President Nixon and Fed Chair Arthur Burns. “Burns ultimately faced rebellion within the ranks of the Fed, and the Fed has been showing more independence of spirit in its voting patterns on policy of late, so one should be cautious of reading too much into the actions of a single individual at the Fed,” he added.