The CEO of "Galaxy Bank" expressed support and predicted a surge in market probability for Waller to become the new Chairman of the Federal Reserve

After JP Morgan CEO Jamie Dimon publicly stated that "Warsh will be a 'great chairman'," this former Federal Reserve governor is quickly becoming a strong contender for the next Federal Reserve chairman, with his winning probability in prediction markets soaring significantly.

As of the latest data on Saturday, the probability of Warsh being nominated has jumped by 17 and 24 percentage points on the prediction markets Kalshi and Polymarket, respectively. This significant change indicates that market expectations regarding the future leadership of the Federal Reserve are undergoing a major shift.

The data from the Kalshi prediction market is even more intuitive, with Warsh's winning probability rising sharply while that of another popular candidate, Hassett, is declining; Warsh's winning probability is almost catching up to Hassett's. The latter's probability is on a straight decline, although its 50% winning probability still leads the field.

This suggests that while Warsh's chances have significantly improved, Hassett's leading position remains relatively stable.

The direct catalysts for this change come from two aspects. First, U.S. President Trump stated on Friday that he is leaning towards choosing Powell's successor between the "two Kevins"—Kevin Warsh and White House National Economic Council Director Kevin Hassett. Second, on Thursday, one of Wall Street's most powerful bankers, JP Morgan CEO Jamie Dimon, explicitly expressed his support for Warsh to lead the Federal Reserve at a private asset management CEO meeting in New York.

Trump Identifies the "Two Kevins"

In an interview with the media on Friday, Trump made it clear that he has narrowed down the search for the Federal Reserve chairman successor to two individuals. He revealed that after a 45-minute meeting with Warsh at the White House on Wednesday, Warsh has become one of his top considerations along with Hassett.

Trump's criteria for selecting candidates are also very clear. “(Warsh) believes you have to lower interest rates, and everyone else I’ve talked to believes the same,” Trump stated. He has been critical of the Federal Reserve under Powell for being reluctant to cut rates significantly amid concerns about controlling inflation. After the Federal Reserve announced a 25 basis point rate cut at its third consecutive meeting on Wednesday, Trump said the cut should have been at least double that amount.

Additionally, Trump believes the next Federal Reserve chairman should consult with him on interest rate policy. He told the media: “I don’t think he should do exactly what we say, but... I am a wise voice that should be heard.” He pointed out that he believes interest rates should be lowered to “1%, or even lower” within a year

"Cosmic Bank" CEO expresses support

Adding significant weight to Warsh's position is the indirect support from JP Morgan CEO Jamie Dimon. Wall Street Journal reported that Dimon told Wall Street executives in a private meeting on Thursday that he agrees with Warsh's views on the Federal Reserve.

Notably, Dimon reportedly also stated that he believes if Hassett were to serve as Fed Chair, the latter would be more likely to lower interest rates in accordance with Trump's wishes. This comment adds more complexity to market interpretations.

Earlier this year, Dimon publicly emphasized that the independence of the Federal Reserve is "absolutely critical" and warned that presidential interference in central bank decisions "often leads to unintended negative consequences."

Different policy outlooks from the "two Kevins"

For the market, the potential policy differences brought by different candidates are a focal point of concern. Some bond investors have expressed worries that a Fed led by Hassett might prioritize economic growth over price stability in pursuit of more aggressive rate cuts.

This policy inclination could disrupt the Treasury market and pose challenges to bond portfolios. Therefore, as the final candidate approaches, the market's scrutiny of candidates' past statements and policy positions will become increasingly rigorous, with any slight movement potentially triggering fluctuations in asset prices.

• Kevin Hassett: As a former White House insider, he is seen as a candidate more aligned with Trump's expectations. He has publicly supported aggressive rate cuts, and some on Wall Street view him as a strong "executor."
• Kevin Warsh: As a former Fed governor, he has received recognition from Wall Street leaders like Dimon. However, his frequent criticisms of the Fed after leaving office have made him unpopular within the central bank, with some opinions suggesting he was "overly hawkish" before the 2008 financial crisis.

As Trump continues to publicly pressure the Fed to adopt more aggressive rate-cutting policies, the competition for the next Fed Chair is intensifying.

Currently, the selection process led by U.S. Treasury Secretary Janet Yellen is ongoing, and Trump is expected to interview more candidates next week. The final choice between a "moderate" trusted by Wall Street or a "loyalist" favored by the White House will be revealed in the coming weeks.

Risk warning and disclaimer

The market carries risks, and investment should be approached with caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investing based on this is at their own risk