Markets Swing as Warsh Overtakes Hassett in Fed Chair Odds After Trump Endorsement

U.S. Treasury Secretary Benson has publicly endorsed both Kevin Hassett and Kevin Warsh as potential successors to Federal Reserve Chair Jerome Powell, calling them "very, very qualified" candidates according to reports. This statement comes amid growing uncertainty over the final decision, as President Donald Trump has indicated both men remain top contenders for the role. Hassett, currently the National Economic Council director, has long been seen as a frontrunner, but recent developments have shifted the landscape.

High-level advisors to Trump have reportedly raised concerns about Hassett's close ties to the president, which initially helped position him as a leading candidate according to sources. This pushback has led to speculation that Warsh, a former Fed governor, may have gained favor in Trump's inner circle. The president himself recently told the Wall Street Journal that Warsh had "moved to the top of the Fed candidates list alongside Hassett" according to reports.

The sudden shift in focus has sent ripples through the financial markets. Hassett's chances of securing the nomination dropped from over 80% to 51% on prediction markets, while Warsh's odds surged from around 11% to 44%. The uncertainty has led to speculation about how each candidate might reshape monetary policy if named the next Fed chair.

Why the Standoff Happened

The pushback against Hassett stems from worries among some Trump allies that his close relationship with the president could undermine the Federal Reserve's independence according to reports. Despite being a long-time advocate of the Fed's independence, Hassett's proximity to Trump has raised concerns among bond investors and political advisors. Some fear that a Hassett-led Fed might prioritize Trump's economic agenda over the central bank's dual mandate of price stability and maximum employment.

Warsh, meanwhile, has been seen as a more neutral alternative. He has a history of advocating for lower interest rates and is less directly tied to the president. This has led some to view him as a safer choice for maintaining the Fed's institutional credibility. Trump's recent public support for both candidates has only deepened the uncertainty, as he emphasized the need for a Fed chair who would consult with him on monetary policy while maintaining the central bank's independence according to reports.

How Markets Reacted

The bond market has reacted cautiously to the shifting dynamics. Investors are closely watching whether the next Fed chair will pursue a more dovish policy, as both Hassett and Warsh are seen as favoring lower interest rates according to analysis. Hassett has previously called for immediate and significant rate cuts, even suggesting a half-point cut if he were in charge. Warsh, too, has made similar arguments in the past, leading to speculation that the Fed could adopt a more aggressive stance on easing monetary policy.

However, there are also concerns that a Trump-aligned Fed might downplay inflation risks and neglect the central bank's responsibility to maintain price stability. Some analysts worry that a focus on growth-oriented policies could lead to a de facto politicization of the Fed's decision-making process, which could have long-term consequences for the central bank's credibility according to reports.

What Analysts Are Watching

Analysts and market observers are closely monitoring how the final decision will impact the Fed's communication strategy and its approach to upcoming policy meetings. If Hassett is chosen, the Fed may adopt a more rules-based monetary policy, which could mean fewer surprises and more predictability in rate decisions according to analysis. On the other hand, a Warsh appointment could mean a return to a more traditional approach, with an emphasis on data-driven decisions.

JPMorgan CEO Jamie Dimon has publicly expressed support for both candidates but has hinted at a preference for Warsh, particularly during a recent private event where he praised the former Fed governor's views on monetary policy according to reports. Dimon also reiterated the importance of Fed independence, cautioning that excessive presidential influence could lead to unintended consequences in the economy.

With the final decision still weeks away, the financial markets remain on edge. Investors are betting on whether the next Fed chair will maintain a cautious, data-dependent approach or take a more activist stance in line with Trump's economic agenda. The outcome of this appointment could have significant implications for interest rates, inflation, and broader market stability in the months ahead.