The candidates for the Federal Reserve Chair position keep changing, and what Trump wants the most is still Bostic?

Bank of America Securities' report on January 21 (analysts Aditya Bhave et al.) pointed out that the selection of the Federal Reserve Chair is entering a critical stage of negotiation. The report suggests that, although the market is generally focused on popular candidates such as BlackRock executive Rieder and Federal Reserve Governor Waller, Treasury Secretary Basant may be the true "hidden candidate" who can meet all three core conditions.

The report indicates that the president is looking for a candidate who can meet three key criteria: 1) Highly aligned with his policy preferences; 2) Possesses an appropriate public image for the position; 3) Able to secure Senate confirmation. Bank of America believes that none of the current public candidates fully meet all the standards, but Treasury Secretary Basant is likely to qualify. As the selection process extends, the market should pay more attention to the possibility of Basant's appointment.

Trump stated this Wednesday during the World Economic Forum in Davos that the candidates for the Federal Reserve Chair have been narrowed down to "possibly only one," although he refused to disclose the specific candidate. The U.S. president expressed a hope that the selected Federal Reserve Chair would be like former Chair Alan Greenspan, and mentioned that BlackRock's Rieder and former Federal Reserve Governor Warsh are both good candidates.

The current landscape shows that as popular candidates Hassett and Warsh each reveal shortcomings, market attention has shifted to BlackRock's Rieder and Federal Reserve Governor Waller. Betting market data indicates that Rieder has become the second most popular candidate with a 25% support rate. Bank of America analysis shows that Basant, as the current Treasury Secretary, maintains policy coordination space and has a communication foundation with Congress, which may better balance technical independence with political demands.

The report also reminds that this personnel decision does not have an urgent timeline. The Trump team may continue to adopt a wait-and-see strategy until the first Chair meeting in June before finalizing the candidate, to ensure that the new Chair can lead the subsequent interest rate cut cycle. The current gap between market expectations and political realities is becoming a key variable affecting the direction of monetary policy.

The Two Kevins Each Have Fatal Shortcomings

National Economic Council Director Kevin Hassett has long been viewed as a popular candidate due to his high loyalty to Trump, but investors have doubts about his ability to maintain the Federal Reserve's independence and continue anti-inflation policies. Particularly after the government pressured current Chair Powell through the Department of Justice this month, market concerns about Hassett have intensified. Trump himself has recently hinted in public that he prefers Hassett to remain in his current position, directly leading to a significant reduction in betting market expectations for his chances.

Meanwhile, the currently leading Kevin Warsh in the betting market also struggles to fully meet Trump's demands. Although he has recently made efforts to court the White House through media appearances, Warsh essentially adheres to a traditional hawkish stance, consistently criticizing quantitative easing policies, which fundamentally contradicts Trump's expectation for significant interest rate cuts.

Rieder: A "Globalist" in the Bond Market

Rick Rieder, as the "dark horse" among the candidates for the Federal Reserve Chair, has seen a significant rise in support recently. It is reported that he had a successful interview with Trump last Thursday, and the market believes he possesses both professional credibility and political feasibility, being viewed as a respected insider while potentially gaining bipartisan support in the Senate.

On the monetary policy front, Rieder has publicly advocated for easing monetary policy multiple times recently. He has pointed out that the risks in the labor market have surpassed inflationary pressures and warned that continued tightening policies could lead to "unexpected distribution effects": stimulating asset consumption among the wealthy while harming the interests of small businesses and young workers. In a report last December, he explicitly stated, "The current Federal Reserve policy tools are too blunt, and many structural issues should be addressed through fiscal channels."

However, Rieder's candidacy still has significant non-traditional characteristics: he is the only major candidate without experience in the Federal Reserve system and does not hold a Ph.D. in economics; his most relevant monetary policy experience comes only from his previous role as a member of the New York Fed's Market Advisory Committee. Politically, his association with BlackRock, the world's largest asset management company, may provoke resistance from Trump's MAGA camp against "globalist financial institutions."

Waller: The Unexpected Advantage of the "Establishment" Candidate at the Federal Reserve

Since taking office as a Federal Reserve Governor in 2020, Christopher Waller has consistently maintained respect for the traditional institutional framework of the central bank. He has demonstrated keen policy judgment in responding to inflation—accurately discussing the path of raising interest rates to curb inflation while avoiding recession in 2022, and recently paving the way for a rate-cutting cycle through forward-looking policy communication, with his policy logic always focused on maintaining labor market stability.

Waller's orientation on interest rate policy intersects with the White House, but is built on a rigorous analytical framework, which enhances his credibility in achieving goals such as combating inflation and reducing long-term funding costs. However, as a staunch defender of the current monetary policy framework, his insistence on central bank independence may not align with Trump's intention to reshape the Federal Reserve. If he ultimately does not receive the nomination, the core obstacle may lie in his clear unwillingness to be a direct executor of political will within the central bank.