Trump's Fed Chair Dilemma: Faster Cuts or Credibility?

Trump Traders Doubt Presidential Pledge to Name New Fed Chair by Christmas

President Donald Trump's pledge to replace Federal Reserve Chair Jerome Powell before Christmas has drawn skepticism from prediction markets, where traders bet a 44% chance the announcement will be delayed into 2026. The president, who has repeatedly criticized Powell for delaying rate cuts, has narrowed his shortlist to five candidates, including Treasury Secretary Scott Bessent and former Fed Governor Kevin Hassett, but has yet to finalize a decision according to Bloomberg.

The five finalists-Hassett, current Fed Governor Christopher Waller, Vice Chair for Supervision Michelle Bowman, former Fed Governor Kevin Warsh, and BlackRock executive Rick Rieder-all lean toward a dovish policy stance, favoring faster rate reductions. Hassett, a Trump loyalist and National Economic Council director, is the market favorite at 32% odds, followed by Waller (17%) and Rieder (15%) as reported by Fidelity. Trump has privately expressed frustration with the selection process, stating, "People are holding me back" from removing Powell, whose term as chair expires in May 2026 according to Yahoo Finance.

Prediction markets on platforms like Kalshi reflect growing uncertainty. Traders on Polymarket currently price a 27.6% chance that Hassett will win the nod if an announcement is made, with Waller and Rieder trailing at 9.7% and 8.3%, respectively as reported by Yahoo Finance. The skepticism contrasts with Trump's public confidence, as he recently declared, "I'd love to get the guy currently in there out right now," while also praising Bessent's work and suggesting he might accept the role if he weren't "too happy at Treasury" as reported by Investing.com.

The Fed's policy direction remains a focal point for markets. All five candidates have signaled support for aggressive rate cuts, a sharp departure from Powell's cautious approach. Hassett, for instance, has argued that the Fed's September 25-basis-point cut was "a good first step" toward "much lower rates," while Rieder has called current high rates "disproportionately burdening lower-income earners" as reported by Fidelity. Waller and Bowman, both sitting Fed officials, have already pushed for easing in recent meetings, with Waller noting that "tariffs are one-off increases in the price level and do not cause inflation beyond a temporary spike" as reported by Fidelity.

The administration's timeline remains fluid. Treasury Secretary Bessent told Fox News that Trump will meet with the final three candidates after Thanksgiving, with a decision expected "before Christmas" according to Yahoo Finance. However, the 44% probability of a delay suggests internal deliberations or external pressures may extend the process.

The Fed's next chair will face a delicate balancing act: aligning with Trump's push for lower rates while maintaining credibility with markets. As one analyst noted, "The next chair must appeal to Trump's desire for aggressive easing without undermining investor confidence in the Fed's independence." For now, the market's skepticism underscores the uncertainty surrounding Trump's ability to fulfill his pledge, even as he continues to assert control over economic policy.