This report summarizes Sage’s analysis of the selection process for Federal Reserve Chairman, tracking its shift toward candidates with strong economic backgrounds. We evaluate current candidates — Kevin Hassett, Kevin Warsh, Rick Rieder, and Christopher Waller — for their potential impact on investment markets. Each brings distinct views and leadership styles that could affect market stability and economic recovery.

1970s: Political Influence and Economic Turmoil

The selection process during the 1970s was marked by high inflation and economic instability, notably due to oil crises. Appointments often reflected political pressures, with candidates chosen based on their alignment with the administration’s economic policies. Arthur Burns (1970-1978) struggled to maintain Fed independence amid these political considerations.

1980s: Emphasis on Anti-Inflation

The focus in the 1980s shifted towards combating inflation, leading to aggressive monetary policies. Candidates were increasingly selected for their anti-inflation credentials. Paul Volcker (1979-1987) was appointed for his strong anti-inflation stance, prioritizing economic stability over political considerations.

1990s: Technocratic Approach

The economy experienced relative stability and growth during the 1990s, with lower inflation. The selection process began to favor technocrats with strong academic and economic backgrounds. Alan Greenspan (1987-2006) was chosen for his economic expertise, reflecting a move toward a more technocratic leadership style.

2000s: Crisis and Reform

Economic challenges in the early 2000s included the dot-com bubble burst and later the financial crisis of 2008. The focus remained on expertise and crisis management. Ben Bernanke (2006-2014) was appointed for his understanding of economic crises and emphasis on stability.

2010s: Increased Scrutiny and Political Divides

The post-GFC recovery was slow in the 2010s, and political polarization intensified. The nomination process became more contentious, with candidates facing scrutiny regarding their independence. Janet Yellen (2014-2018) was selected for her balanced approach but faced debates about her knowledge of finance and capital markets as well as her leadership style.

2020s: Market Reactions and Political Pressures

The COVID-19 pandemic introduced unprecedented economic challenges in the 2020s. As a result, more recent candidates had to demonstrate an ability to navigate complex political landscapes while addressing immediate economic needs. Jerome Powell (2018-present), the then Vice Chairman, was originally selected as a political compromise candidate based on the stability and continuity he would bring to the position. Since then, he has faced increasing scrutiny from various political factions, highlighting ongoing tensions between Fed independence and political influence.

Kevin Warsh

• Professional Background: Former Federal Reserve Governor and Morgan Stanley executive, Warsh has significant experience in both public service and private finance, giving him a comprehensive understanding of monetary policy and market dynamics.
• Education: J.D. from Stanford Law School; B.A. in Economics from Stanford University, providing a strong legal and economic foundation.
• Monetary Policy View: Known for hawkish tendencies, emphasizing fiscal discipline and a more cautious approach to rate cuts.
• Potential Market Impact:
  • Short-Term: Defensive sectors (e.g., utilities, consumer staples) may outperform as investors seek stability; growth sectors like technology may underperform due to his expressed comfort with higher interest rates in the future if needed.
  • Long-Term: His somewhat hawkish stance on monetary policy in the past could create confusion in the market if he signals both a need for higher rates longer term and support for lower rates in the near term, potentially leading to increased market volatility.
• Probability Score for Appointment: 60%, with strong support from conservative Republicans.

Kevin Hassett

• Professional Background: Long-time Republican economist and Chair of the Council of Economic Advisers (CEA) under President Trump. He has extensive experience in economic policy development and has been a prominent voice in conservative economic circles.
• Education: Ph.D. in Economics from the University of Chicago, which is well regarded for its rigorous economic training.
• Monetary Policy View: Advocates for aggressive interest rate cuts and sees inflation risks as overstated.
• Potential Market Impact:
  • Short-Term: Likely to trigger a rally in risk assets, such as equities and corporate bonds, due to increased liquidity and lower borrowing costs, which could stimulate growth.
  • Long-Term: Potential loss of Fed independence could lead to volatility and heightened inflation expectations, which may destabilize markets over time.
• Probability Score for Appointment: 20%, with moderate support from Republican members.

Christopher Waller

• Professional Background: Currently serving as a Federal Reserve Governor, Waller has a strong background in economics and has contributed to significant Fed policy discussions. He is recognized for his analytical rigor and practical approach to monetary policy.
• Education: Ph.D. in Economics from Washington University in St. Louis, which is known for its focus on empirical research and economic theory.
• Monetary Policy View: Supports gradual interest rate cuts and emphasizes the importance of Fed independence.
• Potential Market Impact:
  • Short-Term: Predictable easing could stabilize markets, fostering positive conditions for equities as investors gain confidence in the Fed’s ability to manage economic challenges.
  • Long-Term: While he may face political pressure, his commitment to independence could provide a stabilizing influence, leading to more sustained market confidence.
• Probability Score for Appointment: 20%, with expected bipartisan support due to his well-established standing within The Federal Reserve and inside the Washington beltway.

Rick Rieder

• Professional Background: Chief Investment Officer for Global Fixed Income at BlackRock, Rieder has extensive experience in managing large investment portfolios and navigating the complexities of fixed income markets.
• Education: MBA from the Wharton School, University of Pennsylvania; B.A. in Finance from the University of Pennsylvania, equipping him with strong financial acumen.
• Monetary Policy View: Advocates for a 3% neutral policy rate and favors quicker rate cuts.
• Potential Market Impact:
  • Short-Term: Strong rally in credit and long-duration fixed income markets as liquidity is released, benefiting bondholders.
  • Long-Term: Concerns over perceived insufficient policy independence due to his private sector background may affect investor confidence, leading to cautious market behavior.
• Probability Score for Appointment: 10%, with moderate support but potential skepticism from some Democrats.

Choosing the next Federal Reserve Chair in President Trump’s second term depends on finding a candidate who supports low interest rates and immediate cuts, with loyalty and rapport also valued. Kevin Hassett, an insider, was favored, but recent trends show rising support for Kevin Warsh due to his Fed experience and market credibility. Republican lawmakers emphasize the importance of professional expertise and Fed independence for market confidence and Senate approval.

The DOJ’s January 2026 subpoena of Chair Jerome Powell, associated with Trump’s push for lower rates, has sparked bipartisan opposition and concerns over Fed independence. Key Republicans vow to block Trump’s nominees until the matter is resolved, likely causing delays. The White House is now expected to prioritize a candidate that can show credible independence, thus benefiting Warsh’s prospects. The situation may also prompt Powell to stay on the Board, reducing Trump’s influence. Although the President denies involvement, the timing heightens scrutiny and could impact his final decision.

Prediction markets initially showed a close race for the next Federal Reserve Chairman, with Kevin Hassett and Kevin Warsh both at 35% on Kalshi, while Polymarket had Christopher Waller leading. Since then, sentiment has shifted strongly toward Warsh, reflecting the uncertainty of the nomination. Over time, the selection process has moved from political appointments to favoring expertise, with each candidate’s monetary policy views influencing market outcomes. Based on recent events and our analysis, we expect Kevin Warsh to be selected due to his alignment with administration priorities, credibility as a former Fed Governor, balanced policy stance, and reputation for pragmatic independence.