Market Reaction to Potential Fed Chair Candidates

As U.S. President Trump narrows down the list of potential candidates for the next Federal Reserve Chair, investors and strategists are closely analyzing the range of potential market reactions that each candidate to succeed Powell could trigger.

Candidate Scenarios and Potential Impacts

If current Fed Governor Christopher Waller is selected, the market may experience positive fluctuations, as this would signal continuity in leadership. Conversely, if the nominee to succeed Powell is perceived to align with Trump's positions, it could trigger negative reactions, potentially raising questions about the central bank's independence from the White House. Trump has been considering firing Powell for months, and the recent surprise departure announcement from Fed Governor Adriana Kugler has again brought scrutiny to the personnel makeup and leadership of the monetary policy-setting institution.

Trump's Shortlist

Trump previously indicated he had narrowed down the list of potential successors to Powell to three, including economic advisor Kevin Hassett, former Fed Governor (and Trump supporter) Kevin Warsh, and one other person. On Thursday, Trump nominated Stephen Miran, chairman of the White House Council of Economic Advisers, to complete Kugler’s remaining term, while the decision on the next Fed chair will be delayed. Bloomberg News reported on Thursday, citing sources, that Waller is the frontrunner for Fed chair within the Trump team.

Market Expectations

"After months of heavy-handed hints from the White House, investors have priced in the expectation that the next chair will be a Trump loyalist with an openly dovish bent," said Karl Schamotta, chief market strategist at Corpay in Toronto. Online betting markets Polymarket and Kalshi showed on Thursday that Waller, Hassett, and Warsh were the most likely to succeed Powell.

Independence in Monetary Policy

Overall, the Fed's independence remains a core concern for most investors, and market reactions may vary based on how closely potential candidates are perceived to be aligned with Trump. "President Trump will continue to nominate the most capable and experienced individuals to deliver on his promise to ‘Make America Rich Again’. However, any discussion about personnel decisions should be treated as pure speculation unless it comes from President Trump himself," said White House spokesperson Kush Desai.

The Candidate Who Could Ensure Policy Continuity

Several investors have indicated the market would likely react most positively if Trump nominated Waller for Powell's position. Waller supports immediate interest rate cuts, and he stated last month that he would accept the Fed helm if invited by Trump. In July, the Federal Open Market Committee (FOMC) decided to keep interest rates unchanged, a decision Waller dissented from. In a subsequent statement, he called the Fed’s “wait and see” monetary policy approach “overly cautious.” "Waller is probably the closest to being a continuation of the current Fed management style," said Steven Englander, global head of G10 FX research at Standard Chartered Bank. Guy LeBas, chief fixed-income strategist at Janney Capital Management, said that while the market doesn't have strong views on policy differences between Waller and Warsh as Fed chairs, Waller has been flexible and quick to act during his time at the Fed and has fundamentally had no obvious hawkish or dovish leanings. Therefore, Mark Malek, chief investment officer at Sebert Financial, said that his nomination by Trump for the chair could trigger a positive market reaction. The Fed declined to comment.

Candidates Aligned with Trump's Positions

If the nominee to succeed Powell is perceived as an ally of Trump, it could trigger more negative reactions. "The more a candidate is seen as aligned with the White House, the greater the potential damage to overall U.S. assets," said Felix Vezina-Poirier, a strategist at BCA Research. Analysts said this means that the market would show a negative reaction if Hassett were nominated, with long-dated Treasury yields rising and the dollar selling off. Some analysts said that Hassett's nomination would not bode well for the Fed's independence because he is viewed as closely tied to the White House. Journalists requested comment from Hassett through the White House, but he did not immediately respond. Investors and analysts said Warsh could also trigger some market concerns. Warsh is currently a visiting fellow at Stanford University's Hoover Institution and served as a Fed governor from February 2006 to April 2011, about a year before Powell took the position. During his time at the Fed, Warsh frequently advocated tightening (rather than loosening) monetary policy and criticized the Fed’s quantitative easing policy. "Former Governor Warsh has a long track record of expressing political opinions publicly – particularly in op-ed sections – and is therefore more of an unknown quantity," said Corpay’s Schamotta. "While investors may welcome his recent sudden pivot toward endorsing rate cuts, for many years he criticized Fed policies as being far too easy, and he also vowed to accelerate the shrinking of the central bank's balance sheet – potentially pushing up borrowing costs for an already-strained government," he said. Warsh did not immediately respond to a request for comment. However, the market could be most shocked if Trump nominated a candidate who is perceived to lack experience in the Fed or the economic sphere. Investors said the move would also raise questions about the Fed’s independence. "The bigger question is whether any of these Fed candidates would be more or less ‘beholden’ to the fiscal interests of the White House," said LeBas.