Market Reactions to Presidential Statements

US President Donald Trump’s recent statements regarding potential candidates for the Federal Reserve chairmanship have triggered a rapid shift in market direction and opinion polls.

Following Trump’s remarks, the likelihood of Kevin Hassett, previously considered a strong candidate, becoming Fed Chairman significantly decreased, while the dollar strengthened; gold and silver prices experienced sharp short-term declines.

Presidential Preferences and Market Impact

In his remarks today, Trump said he wanted Hassett to remain in his current role on the White House National Economic Council (NEC), not as Federal Reserve Chair. “Hassett performs very well on television, and I want him to stay in his current position. We’ll see,” Trump said, adding, “Fed officials don’t talk much, Hassett talks a lot.” Following these comments, the US Dollar Index (DXY) quickly rose by over 20 points, while spot gold and silver prices fell sharply.

Trump’s statements also affected market-based expectations regarding the Fed chairmanship. On forecasting platforms, Kevin Warsh’s probability increased, while Hassett’s probability decreased. Other names such as Christopher Waller, Rick Rieder, and Michelle Bowman continued to be listed with lower probabilities.

Uncertainty Surrounding Current Fed Chairman's Future

This situation has also increased uncertainty regarding the post-term of current Fed Chairman Jerome Powell. The Trump administration’s recent tough stance towards the Fed and the Justice Department’s subpoena for a grand jury have strengthened expectations that Powell could remain on the Fed’s Board of Governors after his term ends in May. Powell’s term as a member of the Fed’s Board of Governors extends until January 2028.

In a written and video statement released on January 11, Powell stated that the subpoena was based on his congressional testimony regarding renovations at the Fed building, and he considered this move within the broader context of “government pressure and threats.” This statement fueled speculation in the markets that Powell might remain at the Fed to protect the institution.

Potential Ramifications of Powell's Continued Board Membership

Analysts say that if Powell remains on the board, Trump’s plan to create a Fed leadership that supports interest rate cuts could be disrupted. Former Cleveland Fed President Loretta Mester warned that this could create a perception of “dual authority” in the markets. Antulio Bomfim, Global Macro Director at Northern Trust Asset Management, said that Powell does not want a “shadow chairman” role, but his remaining on the board would inevitably be a strong balancing factor.

No radical change in monetary policy is expected in the short term. The Fed cut its policy rate by 25 basis points last month, marking its third consecutive rate cut, and in recent statements has indicated a wait-and-see approach until inflation and employment data become clearer. However, Powell’s continued presence on the board could delay Trump’s plans to appoint new members to the Fed Board of Governors and gain a majority.