Two Kevins lead the candidates for "shadow Federal Reserve Chair"! Trump praises the "Kevin Twins" while Waller predicts a cooling of enthusiasm

According to the Zhitong Finance APP, Kevin Hassett, Director of the White House National Economic Council, former Federal Reserve Governor Kevin Warsh, current Federal Reserve Governor Christopher Waller, and current Treasury Secretary Scott Pruitt have all been suggested by Wall Street analysts as candidates to lead the Federal Reserve. However, as Trump indicated that Pruitt wishes to focus on the role of Treasury Secretary, the market's attention has shifted to the two "Kevins"—Kevin Hassett and Kevin Warsh. It is understood that in a wide-ranging interview with CNBC's "Squawk Box," Trump spoke highly of both Kevin Hassett and Kevin Warsh.

Comments made by U.S. President Donald Trump regarding the latest nominees to succeed Jerome Powell as the next Federal Reserve Chair have sparked intense speculation in the prediction markets. For Wall Street, the urgency to know the logic behind the Federal Reserve Chair nominee lies in who will ultimately be the "shadow Fed Chair" before Powell's term ends.

The concept of "shadow Fed Chair," which is currently popular in the financial sector, was proposed by Treasury Secretary Pruitt, who advocated for appointing the next chair well in advance, allowing this "quasi-Fed Chair" to speak publicly, participate in policy communication, and manage expectations during Powell's remaining term, thereby weakening Powell's influence and gaining monetary policy initiative for Trump's economic agenda. Pruitt believes that this "shadow Fed Chair" would provide enough forward guidance on monetary policy to make the market "less concerned about Powell's words."

In an interview with CNBC, Trump praised Hassett and Warsh multiple times, while revealing that Pruitt has been "removed from the candidate list" as he enjoys his current position.

"He is excellent," Trump said of Warsh. "But often they are very good before being appointed, and then they don't perform as well once in office. However... I think he is a very good person. I would say, in fact, both Kevins are very good."

Following Trump's remarks, bets on the Kalshi platform, which focuses on prediction markets, quickly shifted, assigning a 35% probability to both Hassett and Warsh becoming the next Federal Reserve Chair. The probability for Federal Reserve Governor Waller, who was not mentioned by Trump in the interview, dropped to 15%, particularly declining after Trump's interview with CNBC.

Trump also stated in the interview that he has narrowed down the candidates for the next Federal Reserve Chair to four people but did not disclose specific candidates other than Hassett and Warsh. "Both Kevins are excellent, and there are other outstanding candidates as well," Trump mentioned in the interview.

Hassett and Warsh both advocate for lowering interest rates. Current Federal Reserve Chair Powell's term will end in May 2026, and he has faced repeated criticism from Trump for maintaining high interest rates.

Federal Reserve Governor Adriana Kugler announced her resignation effective this week last Friday, which Trump called "a surprise." This move provides a significant opportunity for Trump to arrange candidates to enter the Federal Reserve Board, and those appointed to the Federal Reserve Board are likely to be promoted to Federal Reserve Chair when Powell's term ends On Kalshi, Trump's first economic advisor Judy Shelton is given a 6% chance of becoming Powell's successor. Former government official David Malpass, who served as World Bank president from 2019 to 2023, currently has a 4% probability on the prediction market.

Even Trump himself has received a 1% "vote" on Kalshi to lead the Federal Reserve.

The extremely weak July employment report released in early August provided evidence to support the view that "interest rates should be cut in July," which includes the dissent expressed by Federal Reserve governors Waller and Bowman—both supporting a rate cut in July, along with pressure from U.S. President Donald Trump. At the same time, Trump accused the Bureau of Labor Statistics director of politicizing the employment report and called for his dismissal, further shaking an already fragile market.

Due to the significant downward revision of employment data, President Trump fired the director of the Labor Department's statistics bureau and intensified his criticism of Federal Reserve Chairman Powell, demanding his resignation and suggesting that the Federal Reserve Board regain control. This marks an escalation of pressure from the Trump administration on the independence of the Federal Reserve's monetary policy. Therefore, some Wall Street analysts believe that the Trump administration's firing of labor statistics officials, demanding the resignation of Fed Chairman Powell, and the imminent announcement of a "shadow Fed chairman" will inevitably elevate the dovish voices within the Federal Reserve, potentially responding to the increasingly heightened expectations for interest rate cuts in the market.

Interest rate futures market pricing shows that traders are heavily betting on the restart of the Federal Reserve's rate cut cycle, with the probability of a rate cut next month approaching 90%—up from less than 40% before the non-farm payroll report—and betting on at least two rate cuts by the end of the year, even wagering on consecutive 25 basis point cuts in September and October, along with a 25 basis point cut in December, totaling three cuts of 75 basis points by year-end.

In response to the weak non-farm payroll report, BlackRock's Chief Investment Officer for Global Fixed Income, Rick Rieder, stated, "This report provides the important evidence the Federal Reserve needs to adjust rates in September, so the only question is how much the adjustment will be. The likelihood of a 50 basis point cut in September is continuously increasing—if the weakness in the labor market worsens, or if new jobs continue to fall below the 100,000 mark."