Federal Reserve Chair Transition: Process, Candidates, Impact

Event: The current Federal Reserve Chairman Jerome Powell's term will end in May 2026, and he is unlikely to be reappointed. Trump may nominate the next Federal Reserve Chairman soon.

This article mainly answers the following 5 questions:

1. What are the personnel appointment rules for the Federal Reserve Chairman?

2. Who are the candidates for the next Federal Reserve Chairman and what are their policy positions?

3. When is Trump likely to make the nomination?

4. Who has the highest likelihood of being nominated?

5. Historically, what impact does a change in Federal Reserve Chairman have on major asset classes?

Core Conclusion:

The current Federal Reserve Chairman Jerome Powell's term will end on May 15, 2026. The next chairman will be one of the three candidates: Waller, Hassett, or Walsh, all of whom hold dovish positions. Currently, the market believes Waller has the highest probability.

According to historical patterns, Trump may make the nomination around February 2026, but considering Trump's dissatisfaction with Powell, it is possible he will nominate someone much earlier to "undermine" Powell.

Historically, in the three months leading up to the nomination of the Federal Reserve Chairman, market risk appetite tends to be under pressure, and once the nomination is confirmed, risk appetite tends to recover. Specifically for this case, Waller emphasizes the independence of the Federal Reserve more than the other two candidates. If he is nominated, the market may trade that the Federal Reserve's rate cut space still mainly depends on economic fundamentals, and asset pricing will be the same; conversely, if the other two are nominated, the market may trade that the Federal Reserve has lost its independence and has greater room for rate cuts, which would make U.S. stocks and gold more likely to rise, while U.S. Treasury yields and the dollar index would be more likely to decline.

The text is as follows:

1. What are the personnel appointment rules for the Federal Reserve Chairman?

The Federal Reserve Chairman also serves as a governor, with the chairman's term being 4 years and eligible for unlimited reappointment; the governor's term is 14 years and cannot be renewed after expiration. The appointment of the Federal Reserve Chairman is nominated by the President and must be approved by a majority vote in the Senate. The President does not have the authority to directly dismiss the Federal Reserve Chairman but can initiate judicial proceedings for removal through "misconduct, dereliction of duty, or gross neglect," although this situation has never occurred in history.

The current Federal Reserve Chairman Jerome Powell's term will end on May 15, 2026, while his governor term will end on January 31, 2028. Therefore, if Powell does not seek reappointment as chairman, he can still participate in monetary policy decisions as a governor, although his influence will be diminished.

2. Who are the candidates for the next Federal Reserve Chairman and what are their policy positions?

Currently, Trump has not clearly indicated who he will nominate for the next Federal Reserve Chairman. Previously, media reports listed more than ten candidates, but on September 5, Trump stated that he has narrowed the candidates down to three: Waller (current Federal Reserve governor), Hassett (current Director of the National Economic Council), and Walsh (currently not holding a position within the system but has previously served as a Federal Reserve governor and held key positions in government economic departments) In terms of monetary policy views, all three are dovish, believing that the Federal Reserve should cut interest rates immediately and that tariffs have a limited impact on inflation. Regarding the independence of the Federal Reserve, Waller emphasized that the Fed must maintain its independence, while Hassett and Walsh have a somewhat ambivalent attitude towards the Fed's independence, especially Walsh, who believes that the Fed's monetary policy needs to align with fiscal policy and even stated that Trump's pressure on the Fed was correct. For detailed information, see Chart 2.

3. When might Trump make a nomination?

Generally speaking, the nomination for the next Federal Reserve Chair should not be announced too early, as this would lead the market to believe there is a "shadow chair," significantly undermining the current chair's authority. Looking at the past four transitions of the Federal Reserve Chair, the earliest nomination was made 114 days in advance, while the latest was 70 days in advance, with an average of 94 days.

The current Federal Reserve Chair Jerome Powell's term will end on May 15, 2026. Based on historical experience, Trump may nominate the next chair around February 2026. However, considering Trump's dissatisfaction with Powell's policy stance, it is possible that he may nominate the next chair much earlier, thereby largely "undermining" Powell.

4. Who has the highest likelihood of being nominated?

Betting site Polymarket's trading results show that as of September 7, Waller has the highest probability of nomination at 36%, followed by Hassett at 26% and Walsh at 16%. Waller's probability has consistently led and remained stable over the past month, while Hassett's probability has significantly increased in the last two days.

A global fund manager survey conducted by Bank of America at the end of August showed that 20% of professional investors believe Waller will be nominated, followed by Hassett at 19% and Walsh at 15%.

A CNBC survey conducted on August 20 showed that in response to the question of who the next Federal Reserve Chair "will be," the ranking of respondents was: Hassett, Waller, Walsh, Bullard, and Bowman. In the question of who "should be," the ranking changed to: Walsh, Waller, Bullard, Hassett, and Bowman. In other words, respondents generally believe that Hassett is the most likely to become the next Federal Reserve Chair, but Walsh is considered the most competent.

Historically, most former Federal Reserve Chairpersons have served as Federal Reserve Governors or have had extensive experience in financial institutions. From this perspective, Hassett is not a strong match, which is one of the reasons why professionals generally believe that Waller and Walsh are more qualified than Hassett. Although Walsh has experience as a Federal Reserve Governor, that was over a decade ago. Overall, the market reasonably considers Waller to have the highest probability of being elected. However, Hassett, as the Chair of the Council of Economic Advisers and a former economic advisor to Trump, has closer daily contact with Trump, and many of his economic policy views align closely with Trump's, making him more favored by Trump.

5. Learning from history, what impact does the change of Federal Reserve Chair have on major asset classes?

We reviewed the performance of major asset classes during the past four transitions of Federal Reserve Chairs, specifically looking at:

Three months before the nomination: U.S. stocks generally performed poorly, U.S. Treasury yields showed no consistent pattern, the U.S. dollar index was mostly weak, and gold was generally strong. This reflects that before the next chair is determined, market risk appetite often comes under pressure.

Three months after the nomination: U.S. stocks showed significant improvement, U.S. Treasury yields mostly rose, and there was no consistent pattern in the U.S. dollar index and gold prices. This reflects that after the next Federal Reserve Chair is determined, market risk appetite often warms up, but due to differing policy stances of the new chair, the movements of the dollar and gold can also vary.

According to the previous analysis, the three candidates for the next Federal Reserve Chair are all dovish, and the market has fully anticipated this. Therefore, the more significant factor is who will be elected and to what extent they will undermine the independence of the Federal Reserve. In contrast, Waller is more committed to the independence of the Federal Reserve, while the other two are likely to be more compliant with Trump. Therefore, if Waller is nominated, the market may trade on the notion that the Federal Reserve's rate-cutting space will still primarily depend on economic fundamentals, and asset pricing will reflect this; conversely, if the other two are nominated, the market may trade on the loss of independence of the Federal Reserve and a greater rate-cutting space, which would lead to U.S. stocks and gold being more likely to rise, while U.S. Treasury yields and the dollar index would be more likely to fall.

Risk Warning and Disclaimer

The market carries risks, and investment should be approached with caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investing based on this is at one's own risk