By Saqib Iqbal Ahmed

NEW YORK (Reuters) – As President Trump narrows his shortlist for the next Federal Reserve chair, investors and strategists are analyzing potential market reactions to nominees intended to replace Jerome Powell.

Market Reactions

Reactions may vary significantly. A choice like current Fed Governor Christopher Waller could indicate continuity of leadership, while a nominee linked closely to Trump could undermine the Fed’s independence from political influence.

Trump has hinted at ousting Powell, and the recent announcement of Governor Adriana Kugler’s exit has intensified focus on the Federal Reserve’s leadership. He currently has a shortlist of four candidates, including economic adviser Kevin Hassett and former Fed governor Kevin Warsh.

Trump recently suggested he might nominate someone to serve the remaining months of Kugler’s term, with a permanent appointment coming later. Bloomberg News reported that Waller is a leading candidate, citing unidentified sources.

Karl Schamotta, chief market strategist at Corpay, indicated that investors expect the next chair to be a Trump loyalist with a dovish approach.

Candidates and Predictions

Online betting platforms Polymarket and Kalshi show Waller, Hassett, and Warsh as the most likely replacements for Powell. The independence of the Fed remains a critical concern for investors, influencing market reactions based on perceived presidential alignment.

White House spokesperson Kush Desai emphasized that until Trump makes a decision, all discussions regarding personnel decisions are speculative.

Continuity Sought
Market reactions could be favorable if Waller is nominated, as he has expressed interest in the role and is seen as maintaining current Fed management styles. Steven Englander from Standard Chartered believes Waller represents the most continuity.

Conversely, a Hassett nomination might provoke negative market reactions due to his close ties to the White House, possibly leading to rising long-term yields and a declining dollar. Analysts fear that a nomination lacking Federal Reserve experience could further threaten the Fed’s independence.

Warsh’s nomination could also stir concern as he has a history of advocating for tighter monetary policies. Corpay’s Schamotta noted that Warsh’s political views pose risks for market stability.

Ultimately, investors are concerned about any nominee who may be seen as lacking experience or being too influenced by fiscal interests from the White House.