Fear looms: Will Donald Trump name US Fed chair Powell’s successor soon? Here’s why markets are wary of ‘shadow chair’ signal

US President Donald Trump has said he will soon announce a successor to Federal Reserve Chair Jerome Powell, nearly a year before Powell’s term ends in May 2026 — a move investors warn could destabilise markets if it raises questions about Fed independence.Trump, who reappointed Powell in 2018, has repeatedly criticised the central bank for not cutting interest rates this year. Though he has stepped back from earlier threats to fire Powell, Trump told Reuters this month that a decision on the next Fed chair was coming “soon”.According to a Reuters report, markets are concerned that any premature nomination could create a “shadow chair” dynamic, where two conflicting voices steer monetary policy. “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,” said Ryan Sweet, chief US economist at Oxford Economics.The central bank’s policy-setting committee has 18 members, but the chair is viewed as its most powerful voice. “Whomever is appointed, the key thing to monitor is whether they are perceived as being a political appointee,” said Eric Winograd, chief US economist at AllianceBernstein. “And by that, I mean someone whose views change with the whims of the president.”Prediction markets have listed names such as White House economic adviser Kevin Hassett, former Fed Governor Kevin Warsh, Treasury Secretary Scott Bessent, and Judy Shelton, a former Trump nominee, as top contenders. Fed Governor Christopher Waller also ranks high on Kalshi, another online market.The White House and Fed declined to comment. Shelton pointed to her Wall Street Journal op-ed on the Fed, while Warsh did not respond.Callie Cox, chief market strategist at Ritholtz Wealth Management, said, “Any Wall Street manager would tell you that Fed independence is the golden rule of markets. To move away from that can introduce a whole host of issues.”Jason Draho, head of asset allocation Americas at UBS Global Wealth Management, added, “It’s a risk that exists if people are too complacent on how this could all play out.”Powell’s leadership has faced persistent criticism from Trump, who called him a “numbskull” last week over the Fed’s refusal to cut rates again this year. The Fed’s policy rate remains at 4.25%–4.5%, with the last cut of 25 basis points taking place in December 2024.Any new chair must be confirmed by the US Senate, a process that could take months. Alex Grassino, global chief economist at Manulife Investment Management, said the markets would closely monitor any announcement: “You’re sort of setting up an alternate version of what you think policy should be.”“The optimal market reaction to any Fed chair nomination may be none at all,” added Felix Vezina-Poirier, strategist at BCA Research. “No reaction, or a decrease in long-term yields, would be a good sign that the market is digesting the Fed candidate.”Still, some investors believe Trump may wait until Powell’s term nears its end before naming a replacement. “If I were betting, I’d bet other,” said Winograd. “I’d bet the field.”

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