Trump's Fed Chairman Shortlist Is In: What Investors Need To Know

President Donald Trump's shortlist for the next Federal Reserve chair is heating up, fueling bets on deep rate cuts, pressuring the dollar and reigniting concerns over the Fed's long-guarded independence.

According to a Wall Street Journal report, Trump is considering the following names to replace Jerome Powell, whose term officially ends in May 2026:

• Kevin Warsh: Former Federal Reserve governor between 2006 and 2011 and current Hoover Institution fellow. Warsh is known for advocating tight policy during the Great Recession, but more recently signaled openness to looser monetary conditions.
• Christopher Waller: Sitting Fed governor since 2020. Although appointed by Trump, Waller has generally aligned with Powell's policy, although some consider him more accommodating on inflation risks. Last week, Waller indicated that the Federal Reserve could cut interest rates as early as July, departing from the current wait-and-see approach by Powell.
• Scott Bessent: Currently Trump's Treasury Secretary and former chief investment officer at Soros Fund Management. Has limited central banking experience, but is seen as loyal to Trump.
• Kevin Hassett: Former Chair of the Council of Economic Advisers under Trump, with strong academic credentials and vocal support for pro-growth, low-rate policies.
• David Malpass, served as President of the World Bank from 2019 to 2023. Prior to that, he held senior economic roles under Presidents Ronald Reagan and George H. W. Bush. He later served as Under Secretary of the Treasury for International Affairs during Trump's first term.

Who Will Replace Fed Chair Jerome Powell? Betting Markets Weigh In

CFTC-regulated prediction market Kalshi shows the race remains tight, with no clear front-runner emerging.

As of Thursday, both Warsh and Waller are tied with 28% odds each, followed by Bessent at 18% and Hassett trailing at 10%.

A $100 bet on Warsh would return $295 if he’s nominated, while the same wager on Waller would yield $334. For those backing Bessent, the return jumps to $556, and a longshot bet on Hassett would pay $1,000.

Is A “Shadow Chairman” Looming?

Though Powell's term ends in mid-2026, markets are already pricing in a "shadow chairman" effect, according to BBVA analysts, who view the early emergence of a dovish successor as influential.

David Morrison of Trade Nation said, "It is understood that Mr Trump's preferred choices for the role will all be significantly dovish."

That sentiment reflects Trump's repeated criticisms of Powell's high-rate stance. In June, the Fed held interest rates steady at 4.25%–4.50% for a fourth consecutive meeting, prompting renewed ire from the president.

Speaking about Powell at the NATO summit on Wednesday, Trump said, "He goes out pretty soon, fortunately, because I think he's terrible."

Trump added that current rates are inflating the U.S. interest bill and said that a 2-percentage-point rate cut could save the government up to $800 billion annually in debt servicing.

He called Powell "a very political guy," continuing a long feud.

Lawrence Gillum, chief fixed income strategist at LPL Financial, said, "We think the Fed will cut rates this year and maybe a few times in 2026, but to get a meaningful reduction in U.S. interest expenses, the Fed would likely need to revisit the zero interest rate policies of the pre-COVID-19 years, which is unlikely to happen anytime soon."

Dollar Weakness Likely To Extend

The dollar has emerged as the first casualty of Fed speculation. The U.S. Dollar Index – tracked by the Invesco DB USD Index Bullish Fund ETF UUP – dropped Thursday to levels last seen in March 2022, and is down 10% since Trump's inauguration in January.

The euro-dollar pair surged past 1.17, its highest since 2021, while the dollar-franc exchange rate dropped below 0.80, levels not seen since the 2015 Swiss franc peg crisis.

"Powell's successor as Fed chair has shifted market attention back to the longer-term path for Fed policy, and for Fed independence more broadly," Goldman Sachs said in a note Thursday.

Markets are increasingly pricing in the possibility that Trump's pick will push for faster and deeper rate cuts.

Fed funds futures now imply two cuts by the end of 2025, followed by three to four additional cuts in 2026—a significantly more accommodative path than what the Federal Reserve itself projected in its June dot plot, which showed a median expectation of just two cuts next year.

This growing divergence suggests investors are anticipating a clear policy shift under new leadership, even before Powell officially departs.

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