Trump has said he will soon name the next head of the Federal Reserve chief in a move that could rattle financial markets.
Such a move would be highly controversial since there is nearly a year left in current chairman Jerome Powell’s term.
The independence of the Fed — which sets benchmark interest rates that influence everything from mortgage costs to stock prices — is seen by Wall Street as vital for market stability.
An early pick could create a ‘shadow’ chair alongside Powell, blurring the Fed’s message and direction.
‘It’s coming out very soon,’ Trump said of his nomination earlier this month.
Markets respond not just to official Fed decisions, but also to hints about future moves — meaning mixed signals could cause turmoil.
‘You’re going to have two people trying to steer the ship: One that’s actually steering it, and one that’s the backseat driver,’ Ryan Sweet, chief US economist at Oxford Economics told Reuters.
Trump has long criticized Powell for not cutting interest rates aggressively enough, even threatening to fire him during his presidency.
Traders react to the Fed’s official decisions but also suggestions about their future plans
While the president has since reneged on that threat, Wall Street has been unnerved by the President’s willingness to push the boundaries of the Fed’s independence from the White House.
A new Fed chair seen as under Trump’s influence would also concern Wall Street.
‘Whomever is appointed, the key thing to monitor is whether they are perceived as being a political appointee,’ Eric Winograd, chief U.S. economist at AllianceBernstein told Reuters.
‘And by that, I mean someone whose views change with the whims of the president.’
Callie Cox, chief market strategist at Ritholtz Wealth Management agreed that the next Fed chair will be crucial.
‘Any Wall Street manager would tell you that Fed independence is the golden rule of markets,’ Cox told the publication.
‘To move away from that can introduce a whole host of issues.’
A wildcard choice for the next chair could also discombobulate the markets.
Jerome Powell has almost a year left to serve as chair of the Federal Reserve
Treasury Secretary Scott Bessent (left) and former nominee Judy Shelton (right) have been tipped as possible contenders
Former governor of the Federal Reserve Kevin Warsh (left) and White House economic adviser Kevin Hassett (right) are said to be in the running
The top candidates are currently White House economic adviser Kevin Hassett; former Fed Governor Kevin Warsh; former Fed board nominee Judy Shelton and Treasury Secretary Scott Bessent, according to Polymarket.
The Fed’s ‘dual mandate’ is to keep inflation low while maintaining a healthy labor market.
Economists have warned that Trump’s tariffs will raise prices, something that will require interest rates to stay elevated.
However, a slowdown in the job market will pressure the central bank’s monetary policymaking committee to make a cut.
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Trump makes brash economic gamble that could upend Wall Street and threaten your finances