The traditional financial system is currently undergoing a "paradigm shift," the impact of which far exceeds the business cycles experienced by many over the past few decades. By mid-January 2026, the Federal Reserve has not only been the arbiter of global benchmark interest rates but has also become a central stage in an American constitutional and institutional crisis.
The father of value investing, Benjamin Graham, once stated that the market is a "voting machine" in the short run and a "weighing machine" in the long run. Today, this long-term weighing mechanism is pricing in the end of the traditional Volcker paradigm—an era where central bank independence was considered a sacred, inviolable anchor for markets. During the Volcker era, long-term market pricing was fundamentally value-based, whereas now, market participants increasingly seek profit through trading. The "office renovation scandal" involving Powell's Fed merely serves as a pretext for the Trump administration's executive interference with the Fed's monetary policy independence, and has begun to shape a deeper contest between American politics and the economy.
The selection of the next Federal Reserve Chair has evolved into a binary choice between two almost diametrically opposed market operating models. This choice, increasingly wagered on in prediction markets, centers on "the two Kevins"—Kevin Walsh and Kevin Hassett. Currently, Kevin Walsh's probability of success has surged to 60%, leading this high-stakes race.
This particular Kevin represents the "independent hawk" faction within Fed monetary policy, whose philosophy is rooted in sound money theory and who harbors skepticism towards the Fed's bloated balance sheet. Walsh is a "choice of the lesser evil" for the markets—a candidate who offers the government a reformist facade while ensuring the Fed's monetary policy retains sufficient institutional credibility to prevent a complete collapse of the US dollar's "credit premium."
In contrast, Kevin Hassett, representing the "dovish" camp, embodies an unrealistic overreach by the Trump administration: the idea that the Fed should become a partner in supporting government growth and tariff agendas. Simultaneously, institutionalists like Republican Senator Thom Tillis, leading the Senate Banking Committee, have signaled their intent to block any nominee perceived as a political "loyalist."
Consequently, this Kevin's (Hassett's) probability of becoming the next Fed Chair has recently plummeted to 15% in prediction markets. Over the past few days, the betting markets have swung decisively towards the other Kevin (Walsh). The market is clearly voting with its feet, opting for stable, sustainable monetary policy over blind monetary stimulus. My follower, Stephen Miran, a member of the Council of Economic Advisers and a Fed monetary committee governor, currently stands no chance due to his public alignment with Trump's governance direction.
However, even if Walsh is nominated, it does not entirely eliminate the risk of the Fed becoming a "lame duck." This is because, although Powell, having served 14 years as Fed Chair, is at a natural retirement age, if the Senate Banking Committee deadlocks in a 12-12 vote—due to opposition from figures like Tillis—and fails to approve the next nominee, the Fed Chairmanship would enter a state of "acting chair."
In such a scenario, Powell could choose to continue performing the duties of the Fed Chair, or the current Vice Chair could step in. Regardless, this is a situation the Trump administration would prefer to avoid.
To understand the present, one must first dispel a common misconception—that the Federal Reserve's monetary policy operates in a hermetically sealed vacuum, completely independent from the executive branch of the US government. In reality, "Fed independence" was, and still is, "independence within the government, not independence from the government."
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