In a dramatic turn of events, the race to replace Federal Reserve Chair Jerome Powell has taken a new direction following comments from President Donald Trump. Prediction markets are now showing former Fed Governor Kevin Warsh as the front-runner, surging to a 60% chance of being nominated, up from a near tie just days ago.
Trump's Remark Shifts Dynamics
During a White House appearance, Trump addressed National Economic Council Director Kevin Hassett, who has been considered a leading contender for the Fed chair position. Trump praised Hassett’s performance on television and then made a statement that could significantly impact the race:
"I actually want to keep you where you are, if you want to know the truth," Trump said, referring to Hassett’s current role as top economic advisor.
Trump’s remarks came as he was speaking to Hassett, who was present in the audience. The President also turned to White House chief of staff Susie Wiles and said, "We don’t want to him lose [Hassett], Susie, but we’ll see how it all works out."
Prediction Markets React Swiftly
The immediate aftermath of Trump’s comments saw traders on prediction market sites Kalshi and Polymarket adjust their bets. Warsh’s odds of being nominated jumped to 60%, while Hassett’s odds dropped to 16% on Kalshi and 15% on Polymarket. Current Fed Governor Christopher Waller saw his odds rise slightly to 14%, while other candidates like Michelle Bowman and Rick Rieder remained low in the betting pool.
As recently as Wednesday, Warsh and Hassett were nearly neck-and-neck in the prediction markets, indicating that Trump’s statement has clearly shifted the momentum in favor of Warsh. Krishna Guha, head of global policy and central bank strategy at Evercore ISI, noted that while Trump’s signals have often been inconsistent, this latest comment could signal Warsh as the clear front-runner for the first time.
The Candidates and Their Stances
The Fed chair race has been a closely watched contest, with several candidates vying for the position that will become vacant when Powell’s term ends in May. Here’s a brief look at the main contenders:
Kevin Warsh
A former Fed Governor, Warsh has been seen as a hawkish candidate who could advocate for tighter monetary policy. His experience on the Fed and his alignment with Trump’s economic policies have made him a strong contender.
Kevin Hassett
As the director of the National Economic Council, Hassett has been a key advisor to Trump. His deep understanding of the administration’s economic goals has positioned him as a top choice, but Trump’s recent comments suggest he may not be the preferred candidate for the Fed chair role.
Christopher Waller
Current Fed Governor Waller has been a consistent advocate for data-driven decisions and has supported the Fed’s dual mandate of maximum employment and price stability. His odds have improved slightly following the shift in the race.
Michelle Bowman
Another current Fed Governor, Bowman has focused on community banking issues and has been seen as a more moderate voice on the Fed. However, she remains a long shot in the prediction markets.
Rick Rieder
As BlackRock’s fixed income chief, Rieder brings a private sector perspective to the race. However, he has not gained significant traction in the betting markets.
Implications for the SP500
The selection of the next Fed chair could have significant implications for the SP500 and the broader financial markets. The Fed’s monetary policy decisions, which are heavily influenced by the chair, can impact interest rates, inflation, and economic growth—all factors that affect stock performance.
Warsh’s potential appointment could signal a more hawkish stance on interest rates, which might lead to a stronger dollar and potentially lower stock prices in the short term. On the other hand, Hassett’s alignment with the Trump administration could mean more dovish policies aimed at supporting economic growth, which could be positive for the SP500.
Investors will be closely watching Trump’s next move, as the announcement of a nominee is expected to come this month. The timing of the announcement could also play a role, as markets often react strongly to Fed-related news.
Conclusion
The Fed chair race has taken an unexpected turn, with Kevin Warsh emerging as the clear front-runner following President Trump’s comments about Kevin Hassett. The prediction markets are reflecting this shift, and the financial community is speculating on the potential implications for the SP500 and the broader economy. As the race progresses, all eyes will be on Trump’s final decision, which could shape monetary policy and market trends for years to come.
