Key Takeaways
- Prediction markets indicate significant uncertainty over the next Federal Reserve Chair, with the odds nearly split between a specific nominee, Kevin Hassett, and the possibility of no announcement being made in 2025 at all.
- The leading candidates represent starkly different monetary policy ideologies: Hassett embodies a dovish, pro-growth supply-side view, whereas Kevin Warsh offers a more hawkish, rules-based alternative, and Scott Bessent a pragmatic, market-centric approach.
- The outcome has profound implications for asset allocation, with a dovish appointment likely favouring risk assets in the short term at the expense of long-term inflation fears, while a hawkish turn could pressure equities but strengthen the US dollar.
- Beyond the specific nominee, the public and protracted nature of the selection process itself introduces a novel form of political risk, potentially eroding perceptions of central bank independence and influencing current policy through implicit pressure.
Speculation surrounding the next leadership of the US Federal Reserve has become a spectator sport, with prediction markets now offering a surprisingly clear, if fractured, view of the likely outcomes under a potential Trump administration. The odds suggest a near toss-up between the appointment of former economic advisor Kevin Hassett and the curious prospect of no announcement occurring in 2025, a scenario that speaks volumes about the strategic uncertainty at play. This is not merely a political horse race; it is the market attempting to price in a fundamental potential pivot in monetary policy that carries significant consequences for global asset prices, from government bonds to high-growth equities.
While Jerome Powell’s term as Chair does not officially conclude until May 2026, the intense focus on a successor more than a year in advance signals a clear political intent to influence the central bank’s direction. The discussion has moved beyond who might replace Powell to whether he will even complete his term, and how a president might use the threat of replacement as a tool of policy coercion. The candidates being floated are not interchangeable technocrats; they represent distinct and often conflicting economic philosophies, making the choice a critical signpost for the future of inflation control, fiscal coordination, and central bank autonomy.
The Contenders: A Spectrum of Policy Gambles
The names circulating are less a traditional shortlist and more a collection of ideological standard-bearers. Each potential nominee offers a different flavour of economic management, and prediction markets provide a useful, real-time gauge of their perceived viability. The odds reflect a contest between loyalty, market credibility, and hawkish orthodoxy.
| Candidate | Implied Probability (Polymarket) | Likely Policy Stance & Profile |
|---|---|---|
| Kevin Hassett | ~29% | Former Trump CEA Chair. A supply-sider likely to prioritise growth over inflation control. Seen as dovish and politically aligned. |
| No Announcement in 2025 | ~26% | Implies Powell remains, but under significant political pressure. Creates prolonged uncertainty. |
| Scott Bessent | ~16% | Former hedge fund CIO. A market pragmatist who might focus on stability. Floated the idea of a “shadow Fed chair”. |
| Kevin Warsh | ~15% | Former Fed Governor. A rules-based hawk, critical of quantitative easing and likely to pursue a tighter policy stance. |
Kevin Hassett: The Supply-Side Loyalist
Hassett’s position as the frontrunner is logical from a political perspective. His tenure as Chairman of the Council of Economic Advisers demonstrated his alignment with a growth-first agenda. His appointment would signal a Fed far more tolerant of inflation in the pursuit of lower unemployment and higher GDP, especially if coupled with fiscally expansive policies like tariffs or tax cuts. For markets, a Hassett Fed would likely be interpreted as bullish for equities in the immediate term but bearish for the dollar and long-duration bonds, as inflation expectations would almost certainly become unanchored.
Scott Bessent and Kevin Warsh: Pragmatism vs. Orthodoxy
Bessent and Warsh represent two different types of challenges to the status quo. Bessent, with his deep market background, would bring a trader’s sensibility to the role. His peculiar suggestion of a “shadow Fed chair” to publicly critique Powell’s every move is a politically aggressive concept that underscores his non-traditional approach. His leadership might be less ideologically rigid and more responsive to market signals, but his exact policy leanings remain ambiguous. Warsh, conversely, is a known quantity. As a former Fed Governor who was shortlisted for the top job in 2017, he is a respected figure in conservative economic circles. He has been a consistent critic of the Fed’s large balance sheet and discretionary approach, advocating a return to a more rules-based framework like the Taylor Rule. A Warsh Fed would be perceived as hawkish, likely strengthening the dollar and putting upward pressure on real yields, creating headwinds for growth-oriented sectors of the economy.
Implications of the Stalemate
Perhaps the most telling feature of the prediction market is the high probability assigned to “No Announcement in 2025”. This is not a vote for stability. Instead, it suggests a scenario where Powell remains in his post, but his authority is systematically undermined through public criticism and the constant threat of replacement. This limbo state could prove more destabilising than a clean transition. Central bank credibility is a fragile asset, built on the perception of political independence and a steady hand. A protracted campaign to influence a sitting chair would inject a level of political theatre into monetary policy that could unnerve international creditors and domestic investors alike.
This dynamic creates second-order effects. A Fed perceived as beholden to political whims could struggle to anchor inflation expectations, forcing it to act more aggressively down the line. It could also increase the risk premium on US assets, particularly Treasuries, as foreign central banks and investors reassess the predictability of American monetary policy. For investors, this translates into a need to hedge against not just a specific policy outcome, but against heightened institutional uncertainty.
A Game of Thrones at the Eccles Building
Navigating this environment requires thinking beyond the simple binary of dovish or hawkish outcomes. The fight for control of the Fed has become part of the political toolkit itself. A portfolio positioned for a Hassett appointment (long risk assets, short the dollar) would perform poorly under a Warsh nomination, and vice versa. The high probability of no clear decision until later suggests that volatility and uncertainty may be the most durable themes.
As a concluding thought, consider this speculative hypothesis: the primary goal of floating these candidates may not be to select one, but to use the entire process as a form of forward guidance. By creating a public narrative around a desire for looser policy and signalling a low tolerance for interest rate hikes, a new administration could effectively “jawbone” the existing Federal Reserve into a more accommodative stance without ever having to fire the chairman. In this scenario, the speculation is not noise; it is the signal. The “Game of Thrones” for the Fed chair becomes a policy tool in its own right, a high-stakes performance designed to bend one of the world’s most powerful economic institutions to its will.
References
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