Bank of America Securities noted in a January 21st report (analysts Aditya Bhave et al.) that the selection process for the Federal Reserve Chair is entering a critical phase of strategic maneuvering. The report suggests that while market attention is broadly focused on popular candidates like BlackRock executive Rick Rieder and Fed Governor Christopher Waller, Treasury Secretary Bessent might actually be the "hidden candidate" capable of simultaneously meeting three core criteria.
The report points out that the President is seeking a candidate who can satisfy three key conditions: 1) High alignment with his policy preferences; 2) A suitable public image for the role; and 3) The ability to secure Senate confirmation. BofA believes that none of the publicly known candidates fully meet all these standards, but Treasury Secretary Bessent likely fits the bill. As the selection process prolongs, markets should pay greater attention to the possibility of Bessent's appointment.
This past Wednesday at the World Economic Forum in Davos, Trump stated that the list of Fed Chair candidates had been narrowed down to "probably one," although he declined to reveal the specific individual. The US President expressed his desire for the selected Fed Chair to emulate former Chairman Alan Greenspan, mentioning that BlackRock's Rick Rieder and former Fed Governor Kevin Warsh were both good candidates.
The current landscape indicates that as front-runners Hassett and Warsh have revealed their respective weaknesses, market focus has shifted towards BlackRock's Rieder and Fed Governor Waller. Betting market data shows Rieder has become the second most favored candidate with 25% support. BofA's analysis suggests that Bessent, as the incumbent Treasury Secretary, possesses both room for policy coordination and a foundation for Congressional communication, potentially enabling a better balance between technical independence and political requirements.
The report also cautions that there is no urgent timeline for this personnel decision. The Trump team may continue a wait-and-see strategy, only finalizing the candidate before the first chair meeting in June, to ensure the new chair can lead the subsequent interest rate cutting cycle. The gap between current market expectations and political reality is becoming a key variable influencing the direction of monetary policy.
Both Kevins have critical flaws. National Economic Council Director Kevin Hassett, long considered a front-runner due to his high loyalty to Trump, faces investor skepticism regarding his ability to uphold Fed independence and continue anti-inflation policies. Particularly after the administration's recent use of the Justice Department to pressure incumbent Chair Powell, market concerns about Hassett have intensified. Trump himself recently hinted in public that he prefers Hassett to remain in his current position, directly causing a significant drop in his betting market odds.
Meanwhile, Kevin Warsh, currently leading in the betting markets, also struggles to fully align with Trump's needs. Despite recent attempts to curry favor with the White House through media posturing, Warsh fundamentally holds traditional hawkish views, having consistently criticized quantitative easing, which creates a fundamental contradiction with Trump's desire for significant interest rate cuts.
Rieder: The Bond Market 'Globalist'. Rick Rieder, as a "dark horse" candidate for Fed Chair, has seen his support rate rise notably. It is reported that his interview with Trump last Thursday proceeded smoothly; the market views him as combining professional credibility with political feasibility, being seen as both a respected market insider and potentially capable of securing cross-party Senate support.
Regarding his monetary policy stance, Rieder has recently publicly advocated for a looser monetary policy on multiple occasions. He argues that labor market risks now outweigh inflation pressures and has warned that continued tight policy could produce "unintended distributional effects": stimulating asset-based consumption for the wealthy while harming small businesses and young workers. In a December report, he explicitly wrote, "The Fed's current policy tools are too blunt; many structural issues should be addressed through fiscal channels."
However, Rieder's candidacy still carries significant unconventional traits: he is the only major candidate without prior experience within the Federal Reserve System and does not hold a Ph.D. in Economics, with his most relevant monetary policy experience stemming only from a former role on the New York Fed's Market Advisory Committee. Politically, his association with BlackRock, the world's largest asset manager, could trigger resistance from Trump's MAGA base against "globalist financial institutions."
Waller: The Unexpected Strengths of the Fed 'Establishment'. Since his appointment as a Fed Governor in 2020, Christopher Waller has consistently demonstrated respect for central bank institutional traditions. He has shown sharp policy judgment in combating inflation—accurately outlining a path in 2022 to curb inflation through rate hikes without causing a recession, and more recently paving the way for a rate-cutting cycle through forward-looking policy communication; his policy logic consistently focuses on maintaining labor market stability.
Waller's orientation on interest rate policy intersects with the White House's desires, but it is built upon a rigorous analytical framework, lending him greater credibility in achieving goals like completing the inflation fight and reducing long-term funding costs. However, as a staunch defender of the current monetary policy framework, his commitment to central bank independence may not align well with Trump's attempts to reshape the Fed. If he is ultimately not nominated, the core obstacle likely lies in his clear unwillingness to become a direct executor of political will within the central bank.
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