As the Christmas holiday approaches, the competition for the next chair of the U.S. Federal Reserve, which has been ongoing for several months, has entered the final sprint stage. Current chair Jerome Powell's term will end in May 2026, and the suspense surrounding his successor's nomination is likely to be revealed before the holiday. This contest, spanning both the financial and political arenas, is attracting global attention due to its potential to profoundly impact U.S. monetary policy and market direction in the coming years.
I. Christmas Eve: Countdown to Nomination
● U.S. Treasury Secretary Mnuchin previously stated that President Trump is very likely to announce the nominee for the Federal Reserve chair before the Christmas holiday at the end of the year.
● Recently, this process has noticeably accelerated. On December 17, Trump explicitly stated in a televised address that he would soon announce the nominee and emphasized that this person would support a "significant" reduction in interest rates. The next day, Federal Reserve Governor Christopher Waller met with Trump as one of the candidates.
● The market generally expects that during the Christmas week, when U.S. stocks will close early on December 24 and be closed all day on December 25, the Trump administration may seize this political and market focal moment to announce the final decision.
II. Candidate Landscape: From "One Dominant" to "Three Strong Competitors"
The candidate landscape has undergone a dramatic change recently, narrowing from an initial selection of over ten to the current three main competitors:
● Kevin Hassett: As a long-time close ally of Trump and the current director of the White House Council of Economic Advisers, Hassett was once considered the "designated" candidate. He has a background as a Federal Reserve economist and university professor, with economic views highly aligned with Trump. However, his excessive "loyalty" label has become a major concern for the market regarding his ability to maintain the independence of the central bank. Online betting platforms indicate that his nomination probability has significantly dropped from over 80% in early December.
● Kevin Warsh: A former Federal Reserve governor and a banker from Morgan Stanley, Warsh has recently emerged strongly. He has experience dealing with the 2008 financial crisis and has received endorsements from key Wall Street figures such as Treasury Secretary Mnuchin and JPMorgan CEO Jamie Dimon. Trump himself publicly referred to Warsh as the "top candidate" in mid-December. Market predictions suggest his nomination probability has surged to about 47%.
● Christopher Waller: As a current Federal Reserve governor, Waller is seen as a "dark horse" with a solid policy background. Appointed by Trump, he was one of the first officials within the Federal Reserve to call for interest rate cuts, known for his accurate economic judgments. More importantly, in a recent quick poll of executives at a New York conference, he received 81% support from respondents, far exceeding other candidates, indicating his market recognition across political lines.
III. Power Struggles: The Game Between Wall Street and Washington
This personnel decision has evolved into an intense competition spanning the financial and political sectors.
● Wall Street Lobbying: Wall Street giants, represented by JPMorgan CEO Jamie Dimon, are deeply involved, frequently communicating with the government in an attempt to influence the final candidate. There are divisions within Wall Street regarding candidate preferences: some factions are actively lobbying for Warsh, aiming to exclude Hassett, who is seen as "too close to the White House"; meanwhile, general concerns about Hassett's independence have led some market participants to view Waller as a more ideal choice.
● Trump's Core Demands: Analysts point out that Trump places the most importance on loyalty, ideological alignment, and execution when selecting candidates. His core goal is to find someone who can help him quickly and significantly lower interest rates. This is driven by fiscal considerations to reduce financing costs for high national debt, as well as the aim to stimulate the economy to create a "visible achievement" for next year's midterm elections.
IV. Core Controversy: Independence Faces Unprecedented Challenges
Regardless of who is ultimately elected, defending the independence of the Federal Reserve will be the primary challenge they face.
● Trump has repeatedly stated that he hopes the Federal Reserve chair will consult him when setting interest rates. This has raised deep concerns in the market about the potential shift of U.S. monetary policy towards "fiscal dominance"—where monetary policy excessively serves government financing needs rather than economic fundamentals.
● A sharper criticism points out that with a candidate closely tied to the White House taking office, a "direct reporting line from the Federal Reserve through Mnuchin to the White House" may be forming, with Treasury Secretary Mnuchin potentially becoming the behind-the-scenes "shadow Fed chair", severely constraining the Federal Reserve's independent decision-making space.
● Candidates' responses also highlight the delicate art of balance. Hassett recently publicly emphasized that the independence of the Federal Reserve is "very important," stating that even if the president makes requests, decisions must be based on economic data and committee consensus. Warsh, on the other hand, has criticized the past "drift" of the Federal Reserve's functions while generally aligning with Trump on the stance for interest rate cuts.
V. Market Expectations and Future Impact
● The market is digesting the impacts of the uncertainty surrounding the candidates. On one hand, the unexpectedly slowing inflation data in November has heightened market expectations for continued monetary policy easing next year. On the other hand, the policy inclinations of the new chair will directly affect the interest rate path. Trump has publicly stated that he hopes to lower the federal funds rate to "1% or even lower" in a year.
● Major institutions have differing predictions regarding the pace of interest rate cuts next year: Barclays expects two rate cuts in 2026; Credit Suisse holds a similar view but notes that divisions within the Federal Reserve are intensifying; ICBC International is more optimistic, predicting a possible cut of 50 to 75 basis points.
● Ultimately, this "leadership change" drama on the eve of Christmas week carries significance far beyond a mere personnel appointment. It concerns whether the historical tradition of the independence of the U.S. central bank can be maintained, the future direction of monetary policy for the world's largest economy, and it will also stir new waves in global markets. All eyes are on the White House, waiting for the final riddle to be unveiled.
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