Powell on the Hot Seat: How Trump’s Next Fed Pick Could Reshape Markets

• President Trump weighs four candidates to succeed Jerome Powell as Fed Chair, sparking speculation in markets and betting circles

• An abrupt Powell exit or an overly dovish White House pick could trigger macro worries and raise concerns about Fed independence

• We analyze potential scenarios so investors can stay ahead of volatility

The clock is ticking. Each passing week brings the markets closer to the eventual date when President Trump nominates the 17th chair of the Federal Reserve. Some candidates are polishing their resumes, while others are lying low as macro-onlookers speculate about who might get the nod. There are four leading candidates: Kevin Warsh, Scott Bessent, Kevin Hassett, and Chris Waller. 

But that’s not the only drama on the monetary policy front. In July, the president floated the idea of seriously considering firing Jerome Powell. The current Fed chief has been a verbal punching bag for the POTUS, dubbed “too late” Powell by Trump, along with “a stupid person” and “numbskull” in recent months. Amid the most uncertainty in decades as to future leadership at the Fed, markets have taken it all in stride.

The S&P 500 is near record highs, the bond market is stable, and the dollar seems to have found its footing after a first-half struggle. Are investors too complacent? What happens if Powell is out before his term is over? Will markets react violently to a yes-man appointed Fed chair?

Today, let’s dive deeper into the four leading candidates to succeed Powell, along with performing scenario analysis on how asset classes may perform depending on how the process of confirming a new head of the Federal Open Market Committee (FOMC) proceeds.

Follow the Money: Analyzing the Betting Markets

Ahead of the annual Jackson Hole Economic Symposium hosted by the St. Louis Federal Reserve, betting markets are unsure about whose shoulder will be tapped by Trump, or if any candidate will be announced this year at all. 

The Polymarket online betting arena shows a 24% chance that Warsh is picked. Bessent is at 20%, followed by Hassett and Waller at 12%, respectively. There stands an implied one-in-three probability that no announcement will be made by December 31.

Warsh Leads on Polymarket

Source: Polymarket

Learning from Recent History: Tale of the Tariffs

That’s a lot of uncertainty. There are two ways to take that as a macro investor. The first is embracing the reality that stocks love to climb a wall of worry. Meaning, when there is a healthy level of doubt and anxiety, it creates just enough bears to perpetuate a rally. The second is that uncertainty will eventually cascade into fear, resulting in a steep correction or even a bear market. For now, the S&P 500 has followed path No. 1.

It's as if traders are looking through the macro uncertainty, confident that whoever leads the Federal Reserve come late May 2026, it won’t be anything large corporations can’t handle from an earnings perspective. The problem with such assurances is that we saw similar asset-class behavior leading up to the tariff saga of Q1 2025 and Liberation Day on April 2. Then-candidate Trump promised steep tariffs on the campaign trail and reiterated that trade-hawk stance very early in his second term. Stocks kept rallying, notching new all-time highs through mid-February.

Shock and awe then came in early April from the White House Rose Garden. Reciprocal tariff rates that were almost unbelievable adorned those now-infamous posterboards toted out by the POTUS. The S&P 500 plunged 10% over two days, one of the worst short-term falls on record. It turned out to be a negotiation tactic; come out with an extreme position to set the goalposts for future dealmaking. In this particular instance, stocks soared when Trump walked back his decision the following week.

Could a similar process be taking shape? Global equities have been up since mid-April, but the looming risk of turmoil at the Fed exists, and Trump's decisions could potentially influence the market. Who might be called on? Here are the contenders.

The Candidates: Backgrounds & Philosophies

1. Kevin Warsh: The Policy Hawk Turned Pragmatist

Warsh leads on Polymarket, with about a one-in-four chance of being appointed this year. He served on the Fed’s Board of Governors from 2006 to 2011, acting as a primary liaison with Wall Street during the 2008 Great Financial Crisis (GFC). Unlike the other men with names tossed in the ring, Warsh does not currently hold a role in the administration or at the Fed, although he remains a prominent figure in Republican economic circles.

What makes Warsh a complex candidate is that he’s thought of as a hawk, someone who prefers disciplined monetary policy to control inflation and the value of the dollar. During his tenure at the Fed, under then-Chairman Ben Bernanke, he advocated for firmer interest rates than some of his former colleagues.

Naturally, there has been a shift as he vies to succeed Powell. He’s now apparently willing to lower interest rates in what he has described as “pragmatic flexibility.” It raises a key issue in this entire saga: Will Fed independence be compromised? 

Warsh has been outspoken about the essential yet “limited” nature of central bank independence, asserting that the institution must be shielded from overt political pressure while also being accountable to evolving economic realities. The media pounced on his preference for “regime change” at the Fed and the need for more varied viewpoints among its voting members.

2. Scott Bessent: The Administration Loyalist and Market Friend

Treasury Secretary Bessent is perhaps the most respected member of Trump’s cabinet. During the macro panic in April, “Scott B” was a voice of calm. And since the start of the second quarter, Bessent has crafted trade agreements while reassuring markets that experts are in charge. Even President Trump praised him for being the level-headed thinker to counter his own volatile policies and statements. Moreover, Bessent has reportedly told the president that removing Powell could bring about legal challenges and political obstacles.

Bessent trails Warsh by about four percentage points on Polymarket. The former Soros Fund macro portfolio manager understands stocks, bonds, commodities, and currency markets well, and has routinely run laps around media interviewers who attempt to poke holes in Trump 2.0 policy. 

Still, Bessent does not have any monetary policy experience, so it’s not clear what he would become, beyond a doormat to Trump. What also makes Bessent’s current and future role awkward is that he is part of the team tasked with selecting the next Fed chief. With “numerous strong candidates both within and outside the Federal Reserve,” he has refused to rule himself out as a possible choice.

The Treasury secretary’s public declaration that candidates are being vetted makes him an advocate for a so-called "shadow chair” to potentially undermine Powell’s influence on markets. Hence, Bessent’s appointment could lead to a dovish FOMC shift. But his clear loyalty to Trump and involvement in the selection process raise concerns about Fed independence, which is a red flag to the bond vigilantes. Along with the 30-year Treasury rate, we’ll be watching how the dollar performs if Bessent’s odds increase.

3. Kevin Hassett: The Administration’s Economic Policy Architect

Kevin Hassett, former Chairman of the Council of Economic Advisers and current White House National Economic Council (NEC) chief, is one of Trump’s closest economic confidantes. A Hassett selection could rattle markets as it would tear the veil between the Fed and the Executive branch. Known as a conservative academic, Hassett has helped shape key facets of the administration’s macroeconomic messaging, from tax reform to COVID-19 recovery. His chances of nomination are just 12%.

As the NEC lead, his rhetoric on interest rate policy mirrors Trump’s jawboning for immediate easing. Hassett has even suggested that firing Powell could be an option, given the debacle surrounding the Fed’s headquarters renovation. His official stance is that it's “a highly uncertain legal matter.”

If Hassett rises in the betting markets, that may correspond to unease in financial markets, particularly on the long end of the Treasury yield curve. But if Trump is correct in that lower interest rates would be welcomed by the economy, such volatility could be short-lived.

4.  Christopher Waller: The Insider Pushing for Dovish Flexibility

The most vocal man eying to be top dog at the Fed is Waller. A sitting member of the Fed Board of Governors, he was appointed by Trump in 2019 after years of experience as an academic economist. He served as a director at the St. Louis Fed and is respected for his data-driven approach to monetary policy. His implied chance of being chosen by Trump this year is low, just 12%, but the 66-year-old voting member appears to be working to boost those low odds.

Waller has appeared on financial TV recently, calling for imminent rate cuts, while nearly all the other FOMC officials have backed Powell’s “wait-and-see" approach. He may be the most reliable dove, so it makes sense why Trump might tap him. The problem is that Waller’s reputation may be tainted as he aligns himself with the administration. 

As voices grow louder for a preserved separation between the Fed chambers and the Oval Office, critics now see Waller as an obvious way for the administration to extend its influence within the Fed without an external disruption.

Candidate Summary

Portfolio Managers’ View

Our team was intrigued by the July 2025 Bank of America Global Fund Manager Survey (FMS). It asked money managers who they thought would succeed Powell. Like the betting market, the results were mixed, although some respondents may have voted based on their preference rather than who they thought would be chosen. 

Treasury Secretary Bessent was the top pick, something we expressed in July. Warsh, the leader on Polymarket, was runner-up in the FMS, while Waller’s chance was about the same percentage as on the online wagering site. Kevin Hasset, perhaps the most controversial possible pick, is seen as a long shot.

BofA FMS: Bessent Perceived as Most Likely to be the next Fed Chair

Source: BofA Global Research

This is valuable data because it highlights where potential macro volatility resides. If Trump plucks Hassett, and there is little warning or whispers about it in advance, then stocks and bonds could be set up for volatility in September or October. 

Does It Even Matter?

Just as Powell may become a lame-duck Fed chairman, if Trump selects an extreme dove, that person may end up being a chair in name only. It’s the Committee that charts the course of the policy rate, not a single person. If, say, Waller were selected by Trump and confirmed by the Republican Senate, he would have to convince a majority of the other 11 voting members to break from Powell’s stand-pat approach.

Another Question: Should Powell Resign?

First-order logic among the establishment urges Powell to hold his ground and not give in to Trump’s insults and pressure to cut rates. Of course, when actually allocating capital across asset classes, it pays to be a second-order thinker. So, let’s run through what might happen if Powell stepped aside. Might that be positive for Fed independence?

Consider this: If Powell resigns, Trump no longer has a punching bag or a scapegoat to blame if there’s a recession ahead of the 2026 mid-term elections. Powell's departure, giving way to someone of Trump’s choosing, pins the near-term economic outcome on the current administration, not the FOMC. Critics might argue that since monetary policy operates with long and variable lags, the damage may have already been done; however, there’s little doubt that if rates are cut sooner under new Fed leadership, then Trump will own it. 

So, Trump could be verbally jabbing Powell not because he necessarily disagrees with how monetary policy is being conducted, but to lay the groundwork for blaming him later. Powell could remove that leverage by resigning, potentially preserving the Fed's credibility. Jeremy Siegel has discussed this concept recently.

Powell Persistence: Just a 24% Chance of a 2025 Withdrawal

Source: Kalshi

A Glimpse of Possible Price Action

Stocks fell and the yield curve steepened on the morning of July 16, 2025. That’s when Trump may have launched a trial balloon regarding firing Powell. The POTUS drafted a letter to remove the Fed chair, asking Republicans if he should send it. When word got out, the S&P 500 dipped, and long-term interest rates rose. About a half hour later, Trump reversed course, telling the White House press pool that it was “highly unlikely” he would seek to fire Powell.

It was a brief turn of events, but it offered clues on what could happen if Powell was axed and replaced with a dove:

• Stock Market Volatility: An abrupt change at the Fed could result in a spike in the Cboe Volatility Index (VIX) and lower equity prices.

• A Steeper Yield Curve: The reality of a softer policy rate may cause short-term Treasury rates to fall, while looser monetary conditions could lead to higher long-term rates. This situation would be problematic as the US debt burden grows.

• Dollar Weakness: The greenback gave back ground when Trump tested the waters on July 16. 

• Bitcoin and Gold: Lower confidence in Fed independence and heightened fears about the dollar’s dominance would hypothetically be bullish for gold and bitcoin.

Brainstorming Market Scenarios

Let’s keep on the theme of being a step ahead of the market. Here are three scenarios and how we think asset classes may perform. Regardless of the outcome, holding a dynamic macro portfolio is imperative.

1. Gradual Transition: Powell Runs Out the Clock, Warsh Succeeds

This is the least dramatic outcome. Though Trump jawboning likely continues, markets would probably appreciate a steady hand at the Fed with a reliable person at the helm next May. Stocks could perform well, and the S&P 500 price-to-earnings ratio (a barometer of macro confidence and sentiment) may stay high. Long-term Treasury yields are possibly held in check, with a stable dollar.

2. Shadow Chair Emerges in Q3 or Q4, Bessent or Waller 

Volatility could spike initially, but markets may quickly realize the monetary policy disruption would be temporary. Bessent and Waller are respected, and while they could bow to Trump, it’s unlikely that they would seek to drop interest rates quickly, let alone slash the policy rate by upwards of 300 basis points, as Trump wishes. 

3. Powell Calls it Quits in 2025, Hassett Appointed Amid Chaos

The biggest threat to markets is upheaval at the Fed. If Powell is forced out, US monetary policy risks losing credibility domestically and on the global stage. Such a scenario may lead to intense dollar selling, lower stock prices, and costlier long-term interest rates. Gold could be flocked to, and foreign stocks could potentially sharply outperform the S&P 500. 

Other Considerations

Aside from the actual pick, Trump must play the Fed decision as if he were filling a vacant seat on the Supreme Court, as Neil Dutta asserts. His aim should be to secure as many votes as possible on the FOMC. So, nominating, say, Chris Waller, who currently serves, results in the opportunity to replace him. 

Conversely, tapping Bessent is effectively conceding a chance to fill a Fed voting vacancy. Of course, sending Bessent to the Fed also means having to find a new Treasury Secretary, which is not ideal, since Scott B is an asset in his current role. 

Strategy, scenarios, drama...President Trump must be loving this.

The Bottom Line

Pressure is mounting on Powell to resign, but he appears determined to serve out his full term. Who will be his heir apparent? 

Warsh offers a mix of hawkish credibility with dovish pivot potential, plus institutional coordination. Bessent represents continuity and measured policy, with a blended Treasury‑Fed communication model. Waller may be the safe choice for a data-driven, moderate easing, market-friendly Fed. Least likely, Hassett carries the most political baggage that could make the bond market “yippy” once again.

Macro investors must monitor this situation and consider secondary and tertiary outcomes. Allio’s institutional-grade ALTITUDE AI predictive models help individuals build durable portfolios to manage risk as markets evolve.Allio’s institutional-grade ALTITUDE AI predictive models are designed with the aim to help individuals build portfolios and manage risk as markets evolve. Consider investing with us today.