In one of the most consequential financial decisions of his second term, President Donald Trump has signaled he will announce his pick for the next Federal Reserve chair this month—and the race has come down to two finalists both named Kevin.

National Economic Council Director Kevin Hassett and former Fed Governor Kevin Warsh are the leading contenders to replace Jerome Powell, whose term as chair expires in May. Trump referred to them as "the two Kevins," adding: "They're both—I think the two Kevins are great."

The Stakes

The Federal Reserve chair is arguably the second most powerful economic position in the world. Whoever takes the helm will inherit an institution grappling with inflation that remains stubbornly above its 2% target, a labor market showing signs of strain, and unprecedented political pressure to cut interest rates.

For investors, the choice between Hassett and Warsh could signal dramatically different paths for monetary policy—and by extension, for stock prices, bond yields, and the dollar.

Kevin Hassett: The Rate-Cut Advocate

Hassett, who chaired the White House Council of Economic Advisers during Trump's first term, currently serves as director of the National Economic Council. Prediction markets have shown him as the favorite, with Kalshi at one point assessing a 58% probability of his nomination.

His monetary policy views are clear: Hassett has publicly advocated for more aggressive rate cuts.

"I would be cutting rates right now if I were in Powell's shoes."

— Kevin Hassett, National Economic Council Director

Hassett has argued that the boom in artificial intelligence will boost growth and put natural downward pressure on inflation, justifying faster easing. This view aligns closely with Trump's repeated calls for lower interest rates.

If Hassett is nominated, markets would likely price in a more dovish Fed policy path, potentially boosting stocks while weighing on the dollar.

Kevin Warsh: The Establishment Alternative

Kevin Warsh brings different credentials to the table. He served as a Fed governor from 2006 to 2011, including during the 2008 financial crisis. His Wall Street background and prior Fed experience could provide reassurance to markets concerned about institutional continuity.

Warsh has been more circumspect about his monetary policy views, but he's generally seen as more hawkish than Hassett. Prediction markets showed Warsh overtaking Hassett as the frontrunner at one point in December, reaching 47% probability.

A Warsh nomination might be viewed as a more market-friendly choice by bond investors, potentially stabilizing Treasury yields that have been volatile in recent months.

The Selection Process

Treasury Secretary Scott Bessent is running the selection process, having narrowed down a pool of nearly a dozen candidates to five finalists:

  • Kevin Hassett — National Economic Council Director
  • Kevin Warsh — Former Federal Reserve Governor
  • Christopher Waller — Current Trump-appointed Fed Governor
  • Michelle Bowman — Fed Vice Chair for Supervision
  • Rick Rieder — BlackRock Fixed Income CIO

While Waller, Bowman, and Rieder remain in contention, Trump's public comments have focused attention squarely on the two Kevins.

Fed Independence Under Pressure

Whoever is nominated will face intense scrutiny about their willingness to maintain the Fed's traditional independence from political pressure. Trump has been openly critical of Powell and has not ruled out attempting to remove him before his term ends.

Moody's chief economist Mark Zandi has warned that "Federal Reserve independence will steadily erode as the president appoints more members to the Federal Open Market Committee, including the Fed chair in May."

Goldman Sachs strategists have echoed this concern, noting that "worries around central bank independence will extend into 2026."

What the Markets Are Pricing

Traders are currently pricing in two rate cuts in 2026, compared to the Fed's most recent dot plot projection of just one. A Hassett nomination could push expectations toward three or more cuts, while a Warsh pick might anchor expectations closer to the Fed's current guidance.

The 10-year Treasury yield, currently around 4.20%, would be sensitive to any perceived shift in Fed independence. A more politically compliant Fed could push yields higher as investors demand greater compensation for inflation risk.

Timeline

Trump has said he plans to announce his Fed chair selection "early" in the new year. With Powell's term expiring in May, Senate confirmation hearings would need to begin soon to ensure a smooth transition.

Investors should prepare for the announcement to come as soon as next week. The market reaction will depend not just on which Kevin is chosen, but on the signals it sends about the future direction of American monetary policy.

Investment Implications

For portfolio positioning, consider:

  • Rate-sensitive stocks: Real estate, utilities, and growth stocks would benefit from a more dovish Fed
  • Banks: A steeper yield curve under Warsh could help net interest margins
  • Dollar positioning: A Hassett pick could weaken the dollar; Warsh might provide support
  • Bond duration: Longer-duration bonds carry more risk if Fed independence is questioned

The two Kevins offer genuinely different visions for American monetary policy. One way or another, this decision will shape markets for years to come.