Trump Signals Fed Personnel Change, Bitcoin Rally Disrupted, Market Reassesses 2026 Rate Cut Expectation

U.S. President Donald Trump indicated on January 17, 2026, that he is leaning toward keeping Kevin Hassett in his current position as National Economic Council Director rather than nominating him to succeed Federal Reserve Chair Jerome Powell according to reports. The statement raised speculation that Trump may nominate another candidate for the Fed Chair position, altering market expectations for monetary policy in 2026.

The market reaction has been muted so far, with slight price movements in Bitcoin and Ethereum. However, the shift in leadership expectations has led to a reassessment of the likelihood of rate cuts in 2026. CME FedWatch data now shows a reduced probability of two rate cuts, with a 32.1% chance of a 50 basis point cut and 30.3% for a 25 basis point cut.

Bitcoin prices have been affected as well. After reaching a high of approximately $98,000 on January 15, BTC corrected to around $94,500 as market uncertainty increased following Trump's remarks. The uncertainty around Fed leadership and the potential for a more hawkish monetary policy has pressured digital assets in the short term.

Why Did This Happen?

Kevin Hassett was widely expected to be the next Fed Chair. He is seen as more dovish, and his leadership would likely support rate cuts in 2026. However, Trump's public comments have cast doubt on Hassett's nomination, leading to a shift in prediction markets. Former Fed Governor Kevin Warsh has now emerged as the top contender, with a 60% probability of being selected as the next Fed Chair on prediction platforms.

Warsh is viewed as more hawkish, which could mean higher interest rates for a longer period. This has raised concerns among investors who had expected a more accommodative monetary policy in 2026. The shift in sentiment has been reflected in the bond market, with Treasury yields rising and gold prices falling.

How Did Markets React?

The immediate market reaction was a selloff in U.S. stocks and bonds. Investors adjusted their expectations for rate cuts and inflation, leading to increased volatility in equity and fixed-income markets. Short-term interest rate contracts now reflect lower odds of rate cuts in 2026, pushing the two-year yield up to 3.61%—the highest level since the last Fed cut in December.

Bitcoin and Ethereum were also impacted. The correction in BTC prices reflects a broader reassessment of risk assets. While the overall market sentiment remains bullish for the year, the short-term volatility has been amplified by uncertainty around Fed policy.

What Are Analysts Watching Next?

Analysts are closely watching for further signals from Trump on the Fed Chair nomination. The race between Hassett and Warsh is still ongoing, and any definitive statement from the president could trigger a new round of market movements.

The outcome will have significant implications for the economy and financial markets. A more hawkish Fed could lead to tighter financial conditions, which may affect borrowing costs, which may affect borrowing costs, business investment, and consumer spending.

Investors are also keeping an eye on the broader economic environment. The recent slowdown in inflation and the strength of the labor market will influence how the Fed responds to the new leadership dynamics. A delayed rate cut or no rate cut at all could prolong high borrowing costs and impact sectors such as technology, real estate, and small businesses.