Between the usual symposiums and the lively geopolitical debates that grab the headlines, a high-stakes drama is unfolding at the annual World Economic Forum in Davos, Switzerland: who will be the next Federal Reserve chairman, and under what terms.
President Donald Trump is about to announce who will lead the Federal Reserve once Jerome Powell’s term ends in May, according to Finance Minister Scott Bessent said there was growing speculation he might do just that in a speech in Davos on Wednesday. Although Trump has claimed for weeks that he already knows his options, he seems to like it Transforming a typically sober confirmation process into a political spectacle — one that some analysts likened to a “Celebrity Apprentice”-style reveal. What started as a show has turned into a full-blown institutional standoff between the Justice Department, Senate lawmakers and jittery financial markets, which are parsing every hint about whether the next Fed chair will lean dovish or hawkish.
The search process has been subverted by the Justice Department investigation Chairman Powell’s focus is on renovations to the Fed’s headquarters. Powell publicly denounced the investigation “Excuse“Political intimidation, a sentiment echoed by a bipartisan coalition of former Fed chairs and current Republican senators. North Carolina Sen. Thom Tillis has signaled a potential blockade and vowed to oppose any nominee until the Justice Department investigation is fully resolved. Such a move could prevent Trump’s pick from receiving a floor vote, at least for the foreseeable future.”
The rise and fall of Kevin Hassett
For much of the past year, National Economic Council Director Kevin Hassett seemed like the natural heir apparent. Hassett, a veteran of Republican economic policymaking and a key architect of the 2017 tax overhaul, is well-known among Republican lawmakers and Fed officials.
However, his prominence within the Trump administration has become a liability. Hassett has become one of the White House’s most visible economic emissaries, often appearing on television to defend administration policies. Trump, he’s good at this nasty job explain On Friday, the president expressed concern about “losing” his position.
“I mean, wait a minute, if I move him, these Fed officials, certainly the ones we have now, they don’t talk much,” Trump told reporters at a White House event before addressing Hassett, who was listening in the audience. “I’m going to lose you. That’s a serious concern for me.”
analyst Suggesting that the move reflects the administration’s pragmatic calculations; given the toxic environment surrounding the Powell investigation, Hassett’s close political ties to the president may make it unlikely that he will be accepted by the Senate Banking Committee, which is determined to reaffirm the Fed’s institutional independence.
However, markets are unhappy with the possibility of the Fed losing its unequivocally dovish tone and the 10-year Treasury note closure It hit a four-month high on Friday.
Original “core casting” choice: Kevin Walsh
As Hassett’s path narrows, attention increasingly returns to former Fed governor Kevin Warsh, who led the forced buyout and bailout during the 2008 financial crisis before going public break in Discuss quantitative easing, in which the Fed creates money to buy bonds to keep interest rates down, with Chairman Ben Bernanke.
Warsh is widely seen as an “independent candidate” who is hawkish on inflation, skeptical of political pressure and institutionally orthodox. The more toxic the Powell investigation becomes, the more attractive Warsh becomes to senators eager to reaffirm the Fed’s credibility. In 2017, he joined Powell in the final race for Fed chair, though he received praise (many times) was favored by Trump because of his good looks, but he was ultimately dropped because of his relative youth.
Not only has Warsh turned 55 during Trump’s second term, but his main dogma has become even more popular. His famous slogan “Inflation is a choice” refers to his belief that the Fed raises interest rates when the economy is “growing too much” and workers are “overpaid,” rather than because of actual inflation. he has given a warning Year The government’s $38 trillion in debt is influencing the Federal Reserve’s decision-making, incentivizing it to keep interest rates artificially low to reduce debt-servicing costs. Many economists and politicians now Warnings have begun about “fiscal dominance” Warsh’s views are likely to be welcomed by markets and his potential fellow Fed governors.
Quieter options: Christopher Waller
But if Warsh is also seen as too political, Trump may turn to a quieter option, Christopher Waller. Waller, a current Fed governor with a reputation for accurate forecasts, is seen by many as the technocratic alternative: less politically exposed, less polarizing and potentially easier to confirm. When a group of CEOs were polled live at a Yale event who they would like to be chairman of the Federal Reserve, 81% selected Waller.
This may be because Waller has been advocating for further rate cuts and there is a lack of academic research on the importance of the Fed’s independence to protect him from accusations of political capture. This ability to thread the needle is more important now than ever.
Dark Horse: Rick Reed
Markets might be happy if Trump declares BlackRock executive Rick Rieder a dark horse. Only person on shortlist with no Fed experience considered positive In government, Rieder oversees $2.4 trillion in bonds as chief investment officer for global fixed income. He also verbally called for lowering the neutral interest rate, noticed Advances in artificial intelligence will curb inflation, and the Fed’s challenge now is to avoid a “labor dilemma.”
As the Davos summit begins, the focus remains on the “two Kevins” and the looming decisions that will define the U.S. economy in the late Trump era.
what happens next
If Trump does use his Davos speech to nominate Jerome Powell’s successor, the pick would still need to clear the Senate Banking Committee before being put up for a vote. If the Justice Department investigation is not resolved, Trump may not be able to get anyone past the Republican coalition on the Banking Committee that supports Powell.
But investors are betting that Powell will not be indicted, while Jeanine Pirro, the Justice Department official who is apparently spearheading the investigation, has softened slightly. X The matter was just a matter of Powell’s response to the Department of Justice’s “outreach.”