The Federal Reserve Chair nomination faces a turning point: How will the market interpret the future direction of interest rate decisions

The competitive landscape for the next Federal Reserve Chair has undergone a significant change. According to the latest data from prediction markets, former Fed Governor Kevin Warsh’s winning probability has surged to 60%, completely rewriting the previous three-way race among four candidates. This shift reflects the market’s keen sensitivity to political signals and also hints that the potential direction of the Fed’s interest rate decisions may face a re-evaluation.

Prediction Market Sudden Shift: Warsh Support Rises to 60%

In a recent speech, Trump sent a clear political signal, dramatically altering the odds for Fed Chair candidates. White House economic advisor Kevin Hassett stated that Trump is very likely to remain in his current position, implying he will withdraw from the race for Fed Chair. This statement was quickly reflected in prediction markets: traders on Kalshi raised Warsh’s probability to 60%, while Hassett’s and Fed Governor Christopher Waller’s probabilities fell to 16% and 14%, respectively. Data from Polymarket also confirmed this trend, with Warsh support reaching 60%, Hassett at 15%, and Waller at 13%.

Previously, Warsh and Hassett were evenly matched, both seen as the most competitive candidates. This rapid turnaround demonstrates the market’s acute reaction to political developments. Krishna Guha, head of global policy and central bank strategy at Evercore ISI, commented that Warsh has become the clear front-runner for the first time, despite presidents traditionally being adept at creating dramatic effects; this time, the signals seem quite explicit.

Hassett Signals Exit: Trump Prioritizes Incumbent

In an interview with Fox News, Hassett elaborated on his stance. He said that Trump and he have been discussing a core issue: whether his role in the White House West Wing is more suitable than the Fed Chair position. However, Hassett also admitted that Trump has not made a final decision yet.

Trump’s attitude shift was quite direct. During an event at the White House, he told the director of the National Economic Council, “Honestly, I actually hope you stay in your current position.” This statement was interpreted by markets as a strong hint that Hassett might be out of the race. Meanwhile, Rick Rieder, a senior executive at BlackRock, recently gained unexpected momentum; some believe that as a non-politician, he might be more easily confirmed by the Senate. This has turned the Fed Chair race into a four-person contest.

Judicial Investigation Disrupts: Central Bank Independence and Rate Policy Face New Challenges

The criminal investigation into the Fed and its Chair Powell over the headquarters renovation adds new complexity to the race. Powell accused the Justice Department of launching the investigation to pressure the central bank into cutting rates, with key legislative figures on the Senate Banking Committee—including Thom Tillis—warning that scrutiny of Trump’s nominees will be more rigorous.

This investigation overlaps with Trump’s ongoing pressure on the Fed. Although Trump claims to be “completely unaware” of the details, the Justice Department’s actions combined with his relentless push for lower rates have sparked widespread concerns about the independence of the central bank. The next Fed Chair will not only have to navigate complex rate decisions but also maintain the bank’s policy independence under political pressure, demanding high political acumen from the candidates.

Treasury Signals: Senate Will Confirm New Fed Chair Smoothly

U.S. Treasury Secretary Yellen is trying to ease market concerns. According to Axios, Yellen warned Trump that the Justice Department investigation has caused chaos and could be detrimental to financial markets. In an NBC interview, Yellen cited last week’s U.S. Treasury bond auction as evidence, claiming “the market is moving beyond this issue.” Although Treasury yields dipped briefly at that time, overall market reactions remained relatively mild.

Yellen further stated she is not worried about the Senate blocking Trump’s Fed Chair nomination. She told the media, “I believe we will continue to move forward. I think we may hear soon from the Banking Committee about what they want to see.” More importantly, Yellen claimed the Senate will be “very satisfied” with any of the four “great” candidates considered by the Trump administration. This statement effectively set the tone for the market: regardless of who ultimately becomes Fed Chair, future rate policies may lean toward the preferences of the Trump administration.

Yellen even called for increased oversight of the Fed, pointing out that the institution has the power to print money itself. Such remarks further highlight concerns from the executive branch about the central bank’s policy direction and indirectly suggest that future rate decisions could become politicized.

Timeline Confirmed: Powell’s Term Ends in Mid-May

Powell’s term as Fed Chair will end on May 15, meaning the Trump administration must complete the selection and Senate confirmation process before that date. Trump has said he will appoint Powell’s successor this month but has not provided a specific announcement date. This time pressure adds to market uncertainty regarding policy continuity and rate direction.

From the original four-way race to Warsh’s clear lead within just a few days, this rapid development reflects the market’s quick response to political signals and suggests that once the final candidate is confirmed, future rate decisions may face new political considerations. Regardless of who ultimately wins, the next Fed Chair will face the difficult task of balancing the independence of the central bank with political expectations.