FED: The Sweepstakes To Succeed Powell: Hassett & Waller Favorites

Going down the list in terms from highest to lowest implied % probability per prediction markets (Polymarket):

• NEC Director Kevin Hassett (39%): Current director of the National Economic Council (aka the White House's chief economist), Hassett is the perceived favorite to be named as the next Chair. He's got Federal Reserve experience, having previously been a senior economist there. And key is that he is well known and well-liked within the administration having also served in Trump's first term, and has been an outspoken advocate of rate cuts, aligning himself to the President's outspoken views on monetary policy.
  • He also has been critical of the Federal Reserve's decision-making transparency and lack of public acknowledgement of previous forecast/policy errors, echoing Bessent's harsh criticism of the Fed. It should also be noted that he's been critical of federal statistics agencies too, suggesting that some of the BLS's payrolls reporting has been "partisan".
  • Market reaction if Hassett is appointed: Clearest case for a steeper yield curve and weaker US dollar among the 5 candidates; while his appointment is partly priced he would be seen as the most amenable to lower short-end rates, while longer-end breakeven yields could rise if the next Fed Chair was seen to be so closely aligned with the White House. Bessent will be aware of this and it's for this reason we are a little more doubtful that he should be considered such an overwhelming favorite despite his close White House ties.

• Fed Gov Christopher Waller (24%): Probably the most "conventional" candidate for Chair, Waller (like Powell when he was appointed) has years of experience on the current Board (since 2020). He is a PhD economist who was previously head of research at the St. Louis Fed.

  • Factors in favor of his nomination from Trump's perspective: his appointment as an "insider" would reassure markets that policy wouldn't be taken in radical direction; he's been one of the FOMC's champions of rate cuts this year; and he's been blunt and outspoken in some areas of Fed policy (his statement on the Fed's decision to withdraw its principles for climate-related financial risk management was two words: "Good riddance").
  • And perhaps an underappreciated "plus" for the White House: if he takes the job then the Trump administration will be able to appoint an additional ally to the Board than it otherwise would if it needed the next Chair to take Gov Miran's expiring slot in January.
  • Going against his candidacy however is that he is an "insider" when the Trump administration has been calling for reforms to the Fed, and he's been flexibly-minded enough on rate policy over the last few years that there would be no guarantee he'd advocate for an unduly low-rate stance.
  • He told Fox Business today that he had a "great meeting" with Tsy Sec Bessent about 10 days ago. “He and I seem to hit it off very well, talking about economics, the economy, financial markets. [...] They’ve never been political. They’re straight about economics, and that’s just been a great time, for me to sit and talk with him.” He added that it's very important to continue press conferences.
  • Market reaction if Waller is appointed: Slight curve flattening with some USD strength - Waller's currently a dove but not unreasonably so, and a "conventional candidate" would shore up concerns about longer-term inflation. If we were looking at the nomination from Bessent's perspective, this (and the increased potential for Trump to stack the Board) would make him a desirable candidate even if he's not a radical departure from the Fed orthodoxy.