Analysis-Early Fed chair nomination could rattle markets
According to online prediction market Polymarket, the top candidates are White House economic adviser Kevin Hassett; former Fed Governor Kevin Warsh; Judy Shelton, a former Trump pick for the Fed board whose nomination was withdrawn under President Joe Biden; and Treasury Secretary Scott Bessent.
Another prediction site, Kalshi, lists current Fed Governor Christopher Waller as having among the best odds to be nominated.
The White House declined to comment on Hassett or Bessent as possible contenders. A Fed spokesperson declined to comment. In an emailed response, Shelton pointed to her opinion piece about the Fed earlier this week in the Wall Street Journal. A request for comment from Warsh was not immediately returned.
SHADOW CHAIR
Investors worry that an early Fed chair appointment could lead to confusing messages about monetary policy.
"You're going to have two people trying to steer the ship: One that's actually steering it, and one that's the backseat driver," said Ryan Sweet, chief U.S. economist at Oxford Economics.
For months, Trump has hammered Powell, whom the president himself appointed in 2018, over the Fed's decision not to lower interest rates this year.
The central bank cut the fed funds rate by a full percentage point last year, with its most recent cut of 25 basis points in December. But the Fed has pointed to risks of both higher inflation and higher unemployment in keeping the rate at its current level of 4.25-4.5%.
Just last week, Trump slammed Powell over the lack of rate cuts, calling him a numbskull, but said, "I'm not going to fire him."
A Fed chair would need to be confirmed by the U.S. Senate, a process that could take months from the time of Trump's announcement, investors said.
While markets would "not love the idea" of a shadow Fed chair, having a track record of reactions to data and policy "increases the level of familiarity that you would have with their communication style," said Alex Grassino, global chief economist and head of macro strategy at Manulife Investment Management.
"You're sort of setting up an alternate version of what you think policy should be."
The optimal market reaction to any Fed chair nomination may be none at all, said Felix Vezina-Poirier, strategist for BCA Research, adding that he will be watching how bonds respond in particular.
"No reaction, or a decrease in long-term yields, would be a good sign that the market is digesting the Fed candidate," he said.
Some investors doubted that Trump would name a Powell replacement anytime soon, instead waiting until closer to when the Fed chair's term ends.
The eventual nominee may not be among those most publicly rumored or predicted at the moment, investors said.
"If I were betting, I'd bet other," Winograd said. "I'd bet the field."
(Reporting by Lewis Krauskopf; additional reporting by Laura Matthews and Saeed Azhar in New York, Andrea Shalal and Howard Schneider in Washington; Editing by Alden Bentley and Richard Chang)
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