As the term of Federal Reserve (Fed) Chairman Jerome Powell is set to end in May next year, the U.S. financial markets are entering a highly uncertain period. Recently, President Trump stated that he has selected the next Fed chairman, with an announcement expected in the near future. This shift may redirect market focus from the current chairman to the future “shadow chairman.”
Last Sunday, on November 30th, while returning to Washington on Air Force One, Trump revealed to reporters, “I know who I’m going to choose, and we will announce it.” This statement immediately sparked discussions among Wall Street analysts and investors.
Throughout this year, speculation over Powell’s successor has been ongoing. The White House has been fairly transparent, openly listing candidates, including Trump’s chief economic advisor Kevin Hassett, former Fed governor Kevin Warsh, and current Federal Open Market Committee (FOMC) members such as Fed governors Chris Waller and Michelle Bowman.
Another highly touted candidate, Treasury Secretary Scott Bessent, expressed his desire to remain in the Cabinet but did not make the final list.
According to the latest data from prediction market Kalshi, Hassett is currently the frontrunner with a 79% probability, followed by Warsh at 13% and Waller at 8%.
Trump has had a strained relationship with Powell this year, at one point even threatening to dismiss him, causing market unease and raising questions about the Fed’s independence. While the situation has since calmed, discussions about the central bank’s autonomy have not ceased.
With the new Fed chairman set to be announced soon, the market is beginning to question whether Powell or the incoming chairman will truly impact the market over the next half year.
There is speculation that Trump will announce the new chairman before 2025, allowing the future successor to have a preemptive influence on the market. This aligns with Bessent’s previous viewpoint that revealing the new chairman helps establish a gradually expanding “shadow chairman,” diminishing Powell’s influence during the remainder of his term.
Bessent once suggested that the nomination of the Fed chairman should be made public a year before Powell steps down, explaining, “You can nominate the Fed chair early to create a shadow chair. Based on forward guidance logic, by that time, probably no one will care what Powell says.”
Although the nominee has not been announced yet, commentators are already focusing on the future direction of U.S. monetary policy under the new chairman. Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, wrote in a report to clients on Monday (December 1st), “The new leadership at the Fed may lean towards a more accommodative stance.”
He added, “Hassett is seen as a Fed policy dove and aligns with the Trump administration’s position favoring low interest rates. If he is indeed appointed, it is likely to reinforce market expectations of more aggressive rate cuts, further exerting downward pressure on the U.S. dollar.”
Furthermore, UBS Chief Economist Paul Donovan stated that the Senate is unlikely to reject Trump’s nomination because the candidates that are currently rumored “are not extreme enough to cause the Senate to take a stand against them.”
He also mentioned, “Recently, the Fed has shown greater independence in policy decisions, so we should not overinterpret the impact of a particular chairman on overall decision-making.”
Analysts point out that U.S. monetary policy is at a turning point, and Trump’s appointment is bound to once again stir global market nerves.