Trump's Endorsement Sends Warsh's Fed Chair Odds Soaring to 40% on Kalshi

Article with URL markers

President Donald Trump has signaled a shift in his thinking on the next Federal Reserve chair, raising former Fed governor Kevin Warsh's chances of landing the top central bank role. In comments to the Wall Street Journal, Trump said Warsh has moved to the top of his list, prompting a sharp reaction from prediction markets. The odds of Warsh becoming Fed chair surged on Kalshi to as high as 40% from about 15% after the remarks.

Trump also made clear that National Economic Council Director Kevin Hassett remains a strong contender. The president called both candidates "great" and said he wants someone who is "honest" with interest rates. Hassett had long been seen as the frontrunner, with odds near 80% in recent weeks, but those dropped to below 60% briefly after Trump's comments.

The competition for the Fed chair is heating up as Trump moves closer to a decision. The president has emphasized his desire for rate cuts, with the current federal funds rate at 3.50%-3.75%. Investors are closely watching how the Fed's next leader might balance Trump's economic preferences with its dual mandate of price stability and maximum employment.

How Markets Reacted

Prediction markets quickly reacted to Trump's remarks. On Kalshi, Kevin Warsh's odds jumped to 40% from about 15% after the president said the former Fed governor was a top contender. Meanwhile, Kevin Hassett's chances dipped below 60% briefly from a high of near 80% as investors priced in Trump's latest signal. Both candidates remain in the running, with Hassett still the favorite overall.

The sharp moves in the

prediction market reflect uncertainty about the final decision. Trump said he is "pretty confident" about his choice but has not yet made it official. The president is also meeting with Warsh and has engaged in conversations with other candidates, including current Fed governors and Treasury Secretary Scott Bessent.

The Federal Reserve's current chair, Jerome Powell, will leave in May, giving Trump more than four months to announce his successor. Market participants are keen to understand how the next Fed chair will approach interest rates and broader economic policy.

What Analysts Are Watching

Analysts are closely watching how the Fed's next chair will handle Trump's stated preference for lower interest rates. Trump has long criticized the Fed for not moving faster to cut borrowing costs, and his comments in recent days suggest he wants someone who shares that view. Kevin Hassett has stated he would support rate cuts if conditions warrant.

However, Hassett also emphasized that rate cuts must be data-driven. He told the Wall Street Journal that if inflation rises from 2.5% to 4%, the Fed can't justify lowering rates. This suggests that while he shares Trump's preference for lower rates, he may also prioritize the central bank's mandate to maintain price stability.

Warsh, meanwhile, has expressed support for rate cuts but has also signaled that he will follow data and economic conditions. Trump reportedly questioned Warsh about his willingness to support rate cuts during their meeting, indicating the president wants a chair who will act decisively.

Risks to the Outlook

There are several risks to the outlook for the next Fed chair. One is the challenge of balancing Trump's policy preferences with the Fed's independence. While the president has made it clear he wants a leader who will push for rate cuts, he has also said he wants someone who is "honest" and will make decisions based on economic data. This could create tension if the new Fed chair faces pressure to cut rates in the face of inflation concerns.

Another risk is the broader economic environment. The U.S. economy is slowing, with hiring down and businesses struggling with labor shortages. While some argue that rate cuts could help stabilize the job market, others worry that lowering rates too quickly could undermine efforts to bring inflation under control.

Sen. Kevin Cramer, a member of the Senate Banking Committee, said the next Fed chair will need to adapt to the economic outlook and follow data. "They have a very specific mandate," he said. "But I think it's a fairly safe presumption at this point that the next Fed chair would probably be inclined toward lower rates."

Prediction markets suggest Trump is likely to announce his choice by early January, with a 69% chance of an announcement before Jan. 15 on Kalshi. Investors will be watching closely for any further signals from the White House.