The race for Federal Reserve Chair! Trump interviews 4 candidates, "Two Kevins" become favorites

President Trump stated that he is interviewing four candidates for the Chair of the Federal Reserve and expects to soon decide whom to nominate to succeed Jerome Powell. Trump particularly praised Federal Reserve Board member Waller and Vice Chair for Supervision Barr. Last week, Trump hinted that Kevin Hassett, head of the National Economic Council, and former Fed Board member Kevin Warsh are top contenders, both of whom he thinks are excellent. Trump called for a significant rate cut, saying that interest rates should be lowered to 1%.

Political Signals of Waller and Barr’s Special Praise

Trump’s public praise of Waller and Barr on Thursday, December 18, sent important political signals. Waller is a Federal Reserve Board member, previously serving as head of the St. Louis Fed’s research department, with extensive experience in monetary policy theory and practice. Trump said the two met again on Wednesday and praised Waller as “great” and “very experienced,” indicating that Waller has entered the final shortlist.

Waller is considered a relatively dovish member within the Fed. He supported a 25 basis point rate cut in last week’s decision and recently stated that rate cuts have had a positive impact on the labor market. Currently, interest rates are 50 to 100 bps above the neutral level. This stance aligns with Trump’s desire for “aggressive rate reductions,” which may be why Waller is favored.

Barr, the Vice Chair for Supervision, was appointed as a Fed governor during Trump’s first term. She recently led the withdrawal of the 2023 policy restricting banks from engaging in crypto activities, opening the door for stablecoin companies like Circle and Tether to hold reserves directly at the Fed. This crypto-friendly regulatory stance perfectly matches the policy direction of the Trump administration.

Trump expressed admiration for Barr but did not explicitly confirm whether she is among the final candidates. This ambiguous statement could be a negotiation tactic, keeping multiple options open to increase bargaining power. If Barr is ultimately nominated, she will be the first woman in Fed history to serve as Chair, which also has symbolic political significance.

The Three Main Criteria for Trump’s Ideal Fed Chair

Dovish Stance: Willing to actively cut rates, supporting Trump’s claim that “interest rates should go down to 1% or even lower”

Crypto-Friendly: Supports banks’ involvement in crypto activities, promoting US dollar stablecoins and Bitcoin reserve policies

Political Loyalty: Aligns with Trump’s economic policies and will not oppose the White House at critical moments

These three criteria explain why Powell is not favored by Trump. Although Powell was nominated during Trump’s first term, he repeatedly opposed Trump’s rate-cutting requests during his tenure, insisting on Fed independence. Trump has publicly criticized Powell multiple times, even calling him a “fool.” This history of animosity makes it unlikely Powell will receive a renomination.

The Competition and Policy Divergence Between Two Kevins

Last week, in an interview with The Wall Street Journal, Trump hinted that Kevin Hassett, head of the National Economic Council, and former Fed Board member Kevin Warsh are top contenders for the position. “I think both Kevins are great. I think there are a few others who are also excellent.” This suggests Trump has not made a final decision and is weighing multiple candidates.

Kevin Hassett currently leads the National Economic Council and is a core member of Trump’s economic team. He recently stated that the so-called “ghost inflation” is distorting Fed decision-making, and the actual underlying inflation rate is much lower. This view provides theoretical support for a large rate cut. Hassett’s biggest advantage is his close relationship with Trump and policy alignment, but he lacks internal Fed experience.

Kevin Warsh, a former Fed governor (2006-2011), participated in decision-making during the 2008 financial crisis. After leaving the Fed, he became a visiting scholar at Stanford’s Hoover Institution and has extensive contacts on Wall Street. Warsh was a top contender for Fed Chair in 2018 but was ultimately passed over in favor of Powell. His strengths are Fed experience and market credibility, but his past hawkish stance may not fully align with Trump’s desire for rate cuts.

The competition between the two Kevins essentially boils down to a trade-off between “political loyalty” and “market credibility.” Hassett is more loyal but less experienced; Warsh is more professional but more independent. Trump’s final choice will reveal which dimension he values more.

The Radical Call for a Rate Cut to 1% and Market Shock

In an interview with The Wall Street Journal, Trump called for a significant rate cut, saying interest rates should “go down to 1%, or even lower.” This is an extremely aggressive stance. The Fed earlier this month lowered the benchmark rate to a range of 3.5% to 3.75%, marking its third consecutive rate cut. Lowering from 3.5% to 1% would require 250 basis points of cuts, equivalent to ten 25 bps cuts.

Trump’s logic is to reduce mortgage costs, stimulate the housing market, and boost consumption. However, such an aggressive rate cut faces multiple risks. First, the risk of reigniting inflation—if rates are too low and the economy continues to grow, inflation could surge again. Second, asset bubbles—ultra-low rates could push funds into stocks and real estate, creating new bubbles. Third, the credibility risk for the Fed—if perceived as succumbing to political pressure, its independence could be undermined, damaging its policy effectiveness in the long term.

Last week, three Fed officials voted against the rate cut, indicating serious internal divisions. Kansas City Fed President Jeff Schmid and Chicago Fed President Austan Goolsbee both argued for holding rates steady, citing that inflation risks have not been fully eliminated. Meanwhile, Trump ally Stephen Miran advocated for a one-time 50 basis point cut. This internal split means that whoever is nominated as the next Fed Chair will face a challenging political and economic environment.

Trump said he is unsure whether to announce a nominee before the end of the year but will do so “within the next few weeks.” Powell’s term will expire in May 2026, giving Trump about five months to complete the nomination and Senate confirmation process. Once the new Chair takes office, they will immediately face multiple challenges related to inflation, employment, financial stability, and Trump’s political pressures. For crypto markets, if Barr is nominated, her crypto-friendly stance would be a major positive. If Hassett is nominated, his aggressive rate-cutting tendency would also benefit risk assets. The market is waiting with bated breath for Trump’s final decision.