The Race for Fed Chair Heats Up

With Trump still seeking influence over monetary policy, the rumour mill surrounding who will be the next Chair of the Federal Reserve is heating up and could be making markets nervous.

Markets Are Worried About the Fed Again

US President Donald Trump hasn't given up on , posting on social media as recently as last Saturday for a 100-basis-point rate cut. It comes into particular relief given that it's time to think about who will replace Fed Chair Jerome Powell when his term is up in May. Given the lengthy confirmation process and a desire to give the markets ample advance notice, the President typically announces his nominee well in advance. Trump recently said he would disclose who it is "soon".

Who the Fed Chair is is naturally essential to the markets, but given the concerns over the Fed's independence (or Trump’s desire to exert influence), who is selected for the job could be an important signal for the markets. Back in April, markets dropped substantially after it was suspected that and intervene in the Fed. Placing someone to push his agenda from within the Fed could be a way for Trump to to boost the economy. On the other hand, the current Chair was initially appointed by Trump in his first term (and confirmed again by Biden), and all of his current appointees on the FOMC voted to keep rates unchanged, instead of aligning with the President's views.

And the Nominees Are…

The issue of who the next Fed Chair will be has become more pressing following reports that US . The White House offered an immediate stock denial, while Bessent flew back from trade negotiations with China in London to give testimony before Congress. As the news percolated through the market, futures in the US indices turned red, as investors wondered about the implications of such a nomination while Congress is yet to pass a spending bill for the current fiscal year.

There is no confirmation yet on who is being considered, and reportedly, interviews with the President haven't even started. However, the other two names, , have extensive experience at the Fed and are both well-known to the markets. Up until the rumours about Bessent, Warsh was seen as the leading contender, having served on the Fed's Board of Governors during the subprime crisis, been considered by Trump to be Fed Chair in the first term (ultimately deciding for Powell) and also for the role of Treasury Secretary in the current administration. Nonetheless, he was known to be a hawk. Waller is currently on the Board of Governors, having been appointed by Trump, and is seen as more dovish. Markets will likely be looking for some reassurances of Fed independence when the President finally does announce his nominee, and if not, could get quite nervous. The SPX 500 fell by 2.5% immediately after Trump hinted at firing Powell back in April; an "insider" nominee could put downward pressure on stocks and the dollar. The SPX 500 is only 150 points shy of its record high scored earlier this year before the tariff turmoil and would otherwise likely continue the upward trend if good news continues on the trade negotiation front, currently headed by Scott Bessent.

SPX500 Drops After RSI Test

The major US index failed to remain above the 6000 handle, forming a peak at 6064 with the RSI testing the 70 overbought region. The ‘autotrend’ tool shows support at 5996, with the 20-day VWAP showing a second-degree standard deviation at 5926 and a third-degree at 5789. If the SPX500 manages to find support, prices may extend toward the ‘autotrend’ resistance near 6171, assuming the 6100 and 6150 handles give way to bulls while likely trading in the overbought RSI region.

Source: SpreadEx / SPX500

Key Takeaways

The race to succeed Powell is heating up, and markets are growing nervous over potential nominees who align more with President Trump's dovish stance. While no official candidates have been announced yet, rumours suggest that Janet Yellen, Kevin Warsh, and Christopher Waller are all potential contenders, with Warsh seen as a hawkish candidate and Waller as more dovish. Markets are wary of a nominee who could push Trump's agenda from within the Fed, and if confirmed, it could put downward pressure on stocks and the dollar, with markets seeking reassurances of Fed independence.