The selection process for the next Federal Reserve Chair has encountered a new twist at the final hour. Media reports citing sources familiar with the matter indicate that Rick Rieder, BlackRock's Chief Investment Officer of Global Fixed Income, had an interview with President-elect Trump on Thursday that proceeded "quite smoothly." What has captured significant market attention and aligns well with the Trump administration's preferences are Rieder's advocacy for interest rate cuts and his "atypical" tolerance for both deficits and inflation. On monetary policy, he has consistently argued that, as the economy evolves, the Fed should lower interest rates to a "neutral level" of approximately 3%; regarding fiscal issues, Rieder has repeatedly downplayed market concerns over the US's massive government deficits; on inflation, he has proposed that an inflation rate slightly above the target could be acceptable if it helps stabilize debt dynamics and maintain employment. With the former top contender, Kevin Hassett, having essentially withdrawn due to requirements to remain at the White House, Rieder has emerged as a dark horse, becoming one of the frontrunners to take the helm of the Fed. Data from the prediction market Polymarket shows that the odds of Rieder receiving the nomination have risen significantly recently.
"Alternative" Stances: Monetary Easing, Deficit Unconcern, Inflation Tolerance (1) Rate Cuts and "Innovation" Despite never having served at the Fed or in a government policy role, Rieder, as one of the most influential voices in the bond market over the past decade, has his monetary policy views highly regarded by investors. Furthermore, his core positions align perfectly with Trump's long-standing criticism that the Fed has been "excessively tight." On monetary policy, Rieder believes the current level of interest rates is too high, considering the actual evolution of the economy. He has consistently advocated for the Fed to lower rates to a "neutral level" of around 3% as the economy changes. He has warned that the Fed relies too heavily on lagging inflation indicators, overlooking the fact that economic growth is cooling. In his view, maintaining restrictive interest rates for an extended period would not only unnecessarily suppress credit markets but could also lead to an economic "stall." This perspective, grounded in market microstructure, inclines him towards easing policy earlier and more decisively than traditional central bankers—precisely the posture the White House currently desires. Additionally, while Rieder has stated that Fed independence is "crucial," he also aligns with Treasury Secretary Besant's view that the central bank should be "more innovative" in its use of the balance sheet. (2) "Atypical" Tolerance for Deficits and Inflation On fiscal matters, Rieder has repeatedly downplayed market worries about the US's enormous government deficits. He argues that robust global demand for US assets, combined with structural forces like an aging population and high global savings rates, is sufficient to support US debt expansion. He believes the deficit issue is far more manageable than critics anticipate. More radically, he challenges the absolute dogma of the Fed's "price stability" mandate. Rieder proposes that an inflation rate slightly above the target could be acceptable if it aids in stabilizing debt dynamics and preserving employment. Although this view is contentious within orthodox economics, it perfectly dovetails with the Trump administration's focus on "growth promotion and job preservation."
A "Safe Option" in a Political Storm The Fed Chair selection is occurring at the center of a political storm in Washington. Last week, the US Department of Justice unusually issued a subpoena to incumbent Chair Powell concerning remarks related to the Fed headquarters renovation project. Powell countered, labeling it political retribution for not cutting rates quickly enough. This incident rapidly escalated tensions, with Senate Banking Committee member Thom Tillis warning that any Fed nominee would face the most stringent scrutiny while the investigation is pending. This fraught political environment, however, has become a booster for Rieder. Unlike traditional candidates deeply entrenched in Washington policy battles, Rieder, as a seasoned Wall Street bond trader, remains distant from political controversies. Insiders note that in the Senate confirmation process, Rieder is viewed as a "safe option" likely to face smoother approval than other candidates. With Hassett likely remaining as Director of the National Economic Council (NEC), the contest has effectively narrowed to a "three-way game": Rieder versus former Fed Governor Kevin Warsh and current Governor Christopher Waller. Both possess extensive central bank experience and, compared to Rieder's market-oriented background, represent more traditional choices.
"Endgame Moment" Next Week? Treasury Secretary Besant has hinted that Trump plans to formally announce the nomination around the time of the Davos Forum, aiming to eliminate market uncertainty early. Macroeconomic data is also pressuring an accelerated decision. Employment data released this month showed signs of fatigue in the labor market by the end of 2025, with slowing wage growth, turning voter anxiety over the cost of living into pressure for the midterm elections. Although the Fed executed three consecutive rate cuts by the end of 2025, policymakers have signaled they are in no rush to act again before seeing more data, and markets widely expect the Fed to hold steady at its January policy meeting. As the candidate pool shrinks and Trump actively meets with candidates, Rieder's appearance at the White House suggests the Trump administration may be weighing both traditional and non-traditional paths for the future direction of US monetary policy.
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