The most consequential economic appointment of President Trump's second term is imminent. Treasury Secretary Scott Bessent announced in Davos last week that the president could reveal his choice for Federal Reserve chair "as soon as next week"—a timeline that points to an announcement in the coming days.
After a months-long search that began with eleven candidates, the field has narrowed to four finalists. And prediction markets have identified a clear frontrunner: Kevin Warsh, the former Federal Reserve governor who orchestrated the emergency bailouts during the 2008 financial crisis.
The Four Finalists
According to Treasury Secretary Bessent, the search "started in September" and has been whittled down to four contenders, each of whom has met personally with the president:
Kevin Warsh (Frontrunner)
The 55-year-old former Fed governor has surged to the top of prediction markets in recent days. Warsh served on the Federal Reserve Board from 2006 to 2011, where he played a central role in the emergency response to the financial crisis—including the forced takeovers of Bear Stearns and AIG and the bailouts of major banks.
Markets view Warsh as the "independence candidate"—hawkish on inflation, skeptical of political pressure, and institutionally orthodox. His selection would signal that Trump, despite his frequent criticism of the Fed, is willing to accept an independent central banker.
Kevin Hassett (Former Frontrunner)
The current Director of the National Economic Council was once seen as the leading candidate. However, Trump recently expressed reluctance to nominate Hassett, telling him publicly: "I actually want to keep you where you are, if you want to know the truth."
Hassett has advocated for aggressive rate cuts, aligning with the president's stated preferences. But his policy views may be too closely associated with the White House for comfort, potentially raising questions about Fed independence.
Rick Rieder (Dark Horse)
BlackRock's global chief investment officer was described by Trump as "very impressive" after their meeting. Rieder would bring a market practitioner's perspective to the Fed, but his lack of central banking experience could be a drawback for a role that requires managing complex monetary policy.
Christopher Waller (Institutional Choice)
The current Fed governor offers the smoothest transition path. Waller has institutional credibility and experience, but may be too closely associated with the Jerome Powell era that Trump has frequently criticized.
Why Markets Are Watching
The Fed chair appointment matters enormously for investors. The chair sets the tone for monetary policy, influences interest rate decisions that affect everything from mortgages to corporate borrowing costs, and serves as the primary voice of the world's most important central bank.
Each candidate implies a different policy direction:
Warsh: Likely to maintain Fed independence and prioritize inflation control over growth stimulus. Markets may initially rally on reduced political interference concerns, though rate cut expectations could moderate.
Hassett: Would likely pursue aggressive rate cuts aligned with Trump's preferences. Bond yields could rise on inflation concerns, while stocks might initially benefit from easier money.
Rieder: The least predictable choice given his lack of central banking experience. Markets would need time to assess his policy framework.
Waller: Represents continuity with current policy. Minimal market disruption expected.
The Powell Factor
Hovering over the selection is the unusual situation with current chair Jerome Powell. His term expires in May, but he has indicated he will serve out his position on the Board of Governors through January 2028.
Complicating matters, the Justice Department has opened a criminal investigation into Powell related to congressional testimony about the Fed's building renovation costs. Powell has dismissed the probe as "a false pretext aimed at pressuring the Fed over its interest rate decisions."
The investigation has created political tension that some observers believe has actually strengthened the case for Warsh. A nominee perceived as independent of White House pressure could help defuse criticism that the administration is trying to politicize the central bank.
"If you wanted to design a system to guarantee that interest rates would go up and not down, the best way to do that would be to have the Federal Reserve and the executive branch of the United States get in a pissing contest. We need this like we need a hole in the head."
— Senator John Kennedy (R-LA)
What to Watch For
As the announcement approaches, investors should monitor several factors:
Timing: An announcement could come any day. Treasury Secretary Bessent suggested "next week" while speaking in Davos on January 20, pointing to a window between January 27-31.
Market reaction: Watch the 10-year Treasury yield for immediate signals about rate expectations under the new chair. Stock futures will also react, particularly rate-sensitive sectors like utilities and real estate.
Senate confirmation: Any nominee must be confirmed by the Senate. Senator Thom Tillis (R-NC) has indicated he will oppose nominees until the Powell investigation is resolved, potentially creating complications regardless of who is chosen.
The Bigger Picture
Beyond the immediate market implications, the Fed chair selection will shape economic policy for years to come. The new chair will inherit an economy growing at a solid pace but with persistent inflation concerns, an ongoing debate about the appropriate level of interest rates, and unprecedented political pressure from the White House.
For investors, the appointment represents a pivotal moment. The choice between a market-friendly dove, an inflation-fighting hawk, or something in between will influence portfolio positioning across asset classes.
With prediction markets pointing to Warsh—a choice that would prioritize institutional credibility over political loyalty—the signal is that independence may prevail over ideology. But in an administration known for surprises, nothing is certain until the announcement is made.
