Over the last couple of days there have been some rumors of what could be a political-markets bombshell. Some media outlets have speculated that current US Treasury Secretary Scott Bessent is being considered as a candidate for Chair of the Federal Reserve. The move could have unpredictable impacts on the dollar and beyond given the importance of both roles and the tumultuous situation of US government finances.
Although the Fed Chair is not king over monetary policy, presiding over a board of 12 other members, he can wield important influence, particularly in the markets. The issue just over a month ago around the independence of the Fed as US President Donald Trump tried to pressure Fed Chair Jerome Powell shook up the markets. Powell’s term will end in May 2026, and it usually takes a few months for the new Fed chair to be confirmed by the Senate. Typically, it’s best to get the process done as soon as possible to not surprise the markets. We are now moving into Fed candidate season, and all that implies for the markets.
The Indepence Question Again
It’s well-known that Trump wants to have more influence over the Fed, as he’s brought up the issue repeatedly over the years. Trump also appointed the current Fed (who was reappointed by Biden), after railing against former Fed Chair Janet Yellen. Moving someone from the Administration over to head up the Fed wouldn’t be unprecedented, but it would likely be seen as a move to align the Federal Reserve with the White House.
On the other hand, again Powell as an example, the mere fact that someone is nominated for the job by Trump, it doesn’t mean that they will do as the President expects. At the moment, Trump wants lower interest rates, understandably because that would help support the economy, a key political issue. However, his nominees from the prior administration that still sti on the Board have recently all voted to keep rates unchanged.
The Competition
Before the rumors about Powell, there were already two strong candidates that were understood to be under consideration: Keven Warsh and Christopher Waller, both with deep Fed backgrounds. Warsh was on the Fed’s Board of governors during the subprime crisis, and was widely regarded as a hawk. He also was considered by Trump in his first administration before ultimately deciding on Powell.
Chris Waller is more familiar to traders because he’s currently on the Board of Governors, and was appointed by Trump in his first term. Waller is generally seen as dovish, which aligns with current views in the White House that interest rates should be lower.
Will Bessent Agree?
Unless either Trump or Bessent (who is due to testify before Congress on Wednesday) definitively rule it out, the market will continue to speculate what this means for monetary and fiscal policy. Quite recently Bessent was adamant about the independence of the Fed, arguing that Trump and himself would like to see lower rates in the 10-year Treasury bill, not that the FOMC should cut rates.
As Treasury Secretary, Bessent has a lot to say on fiscal policy, which has been his long-standing gripe, and what brought him to Trump’s attention during the campaign. As Fed Chair, he’d have a much less political job – that is, unless the real goal is to affect monetary policy. And for that reason, the market could get increasingly nervous if Bessent’s candidacy gains traction.
