The most consequential personnel decision of President Trump's second term may come within days. With Fed Chair Jerome Powell's term expiring in May 2026, Treasury Secretary Scott Bessent has confirmed the shortlist of potential successors has narrowed to just four candidates.

"I'd expected that we would have a decision either before he leaves for Davos or when he returns," Bessent said in a recent interview, referring to President Trump's schedule at the World Economic Forum. The announcement could reshape monetary policy for years to come.

The Stakes of This Selection

The Federal Reserve chair wields enormous influence over the American economy. Through interest rate decisions, the Fed affects everything from mortgage rates to job creation to the value of the dollar. The chair also serves as the public face of American monetary policy, communicating with markets, Congress, and the global financial system.

With inflation still above the Fed's 2% target and significant uncertainty about tariff impacts, the next chair will face immediate challenges requiring delicate judgment. The wrong choice could spook markets, reignite inflation, or both.

The Reported Frontrunners

While Bessent hasn't officially named the four finalists, reporting from multiple outlets suggests the shortlist includes:

Kevin Warsh

A former Federal Reserve governor who served from 2006 to 2011, Warsh has emerged as a leading candidate. He was previously considered for the Fed chair position in 2017 before Trump selected Powell. At 55, Warsh brings both Fed experience and Wall Street credibility from his time at Morgan Stanley.

Policy implications: Warsh is generally seen as hawkish on inflation but pragmatic about growth. He's publicly criticized some Fed communication practices and has advocated for more rule-based monetary policy. Markets might initially react cautiously to a Warsh appointment, given uncertainty about his specific policy inclinations.

Kevin Hassett

Currently serving as Director of the National Economic Council, Hassett was initially seen as a top candidate. However, Trump indicated Friday that he'd prefer Hassett to remain in his current role, potentially dimming his Fed chair prospects.

Policy implications: Hassett is an economist with strong supply-side credentials. His appointment could signal a more growth-oriented Fed, potentially with lower rates than might otherwise prevail. Markets might view this positively for stocks but negatively for inflation expectations.

Other Reported Candidates

Names that have circulated include financial executives and economists with varying policy perspectives. Any selection will be scrutinized for signals about the administration's tolerance for inflation versus its desire for lower interest rates.

What Markets Want—and Fear

Financial markets have a clear preference in Fed chair selection: they want competence, predictability, and independence from political pressure. The sharp market reaction to the Powell investigation demonstrates how seriously investors take central bank credibility.

A new chair who appears chosen primarily for loyalty rather than expertise could trigger:

  • Higher long-term interest rates as investors demand compensation for inflation risk
  • Dollar weakness as confidence in American monetary policy erodes
  • Increased volatility as markets struggle to predict policy decisions
  • Gold and other inflation hedges moving higher

Conversely, a selection perceived as credible and experienced could provide market stability, even if the nominee's policy preferences differ from current leadership.

The Confirmation Challenge

Any Fed chair nominee must be confirmed by the Senate, which presents potential complications. Republican Senator Thom Tillis has pledged to oppose any Fed nominee until the Powell investigation is resolved. Senator Lisa Murkowski has also expressed concerns about the probe.

With a narrow Senate majority, the administration cannot afford many defections. A controversial nominee could face a prolonged confirmation battle, leaving the Fed in leadership limbo during a critical policy period.

The Powell Transition

Powell has indicated he will fulfill his obligation to run the central bank through May, despite the ongoing investigation. The transition period will be watched carefully for any signs of tension between the outgoing and incoming leadership.

Historically, Fed chair transitions have been managed professionally regardless of policy differences. Alan Greenspan, Ben Bernanke, Janet Yellen, and Jerome Powell all ensured smooth handoffs to their successors, recognizing that institutional credibility depends on orderly transitions.

What the Selection Will Signal

Beyond the individual chosen, markets will parse the selection for broader signals about economic policy:

  • Independence: A credible, independent-minded nominee would reassure markets about Fed autonomy
  • Inflation tolerance: A nominee perceived as dovish might spark inflation concerns
  • Communication style: Some candidates favor more transparent Fed communication; others prefer discretion
  • Banking regulation: The Fed chair also influences bank supervision policy, relevant for financial sector investors

Historical Context

The Fed chair position has grown in stature over decades. Paul Volcker became a inflation-fighting legend in the 1980s. Alan Greenspan was credited (controversially) with the "Great Moderation" of stable growth. Ben Bernanke navigated the 2008 financial crisis. Janet Yellen managed the post-crisis recovery. Powell steered through COVID and its inflationary aftermath.

Each faced challenges specific to their era. The next chair will confront the intersection of post-pandemic inflation, transformative AI technology, climate-related financial risks, and an increasingly interventionist federal government.

For Investors: What to Watch

As the announcement approaches, several factors bear monitoring:

  • Market reaction to any leaks: Names that surface before official announcement may trigger immediate trading
  • Senate Republican statements: Signs of confirmation support or opposition
  • Global central bank responses: How international counterparts react will signal confidence levels
  • Bond market moves: Long-term Treasury yields will reflect inflation expectations and Fed credibility

The Fed chair sweepstakes represents more than a personnel decision—it's a referendum on the future of American monetary policy at a particularly uncertain moment. For investors with any exposure to dollar-denominated assets, the outcome matters enormously.