TL/DR –
Federal Reserve Chairman Jerome Powell is under threat from President Donald Trump, who has criticized his performance and may choose someone else to head the central bank next year. Traders responded to the potential shake-up, increasing odds on rate cuts this year, leading to a tumble in Treasury yields and a sharp decrease in the dollar against global counterparts. Potential replacements reportedly include Treasury Secretary Scott Bessent and National Economic Council Director Kevin Hassett, among others.
Fed Chair Powell’s Congressional Hearings and Shadow Fed Chair Speculations
Federal Reserve Chair Jerome Powell testified before the Senate Committee on Banking, Housing, and Urban Affairs on June 25, 2025, with President Donald Trump publicly criticising him during a NATO summit. Trump’s harsh words for Powell, whom he nominated for the Fed job eight years ago, may suggest further actions.
The financial community is speculating over the potential for a “shadow chair” following Trump’s comments. This could be someone Trump installs as a central bank critic until Powell’s term ends in May 2026. On Wall Street, this speculation has influenced markets and led traders to increase bets on rate cuts this year. Trump confirmed that he has narrowed down the list of potential successors to “three or four people” but didn’t name them.
Potential Candidates for the Role
The pool of potential candidates includes Treasury Secretary Scott Bessent, National Economic Council Director Kevin Hassett, former Fed Governor Kevin Warsh, and Christopher Waller, a Trump-appointed governor known for advocating lower interest rates. Despite the rumours, Bessent has denied interest in the job.
A recent Wall Street Journal report suggested former World Bank President David Malpass is also a potential candidate. The same report indicated that Trump might name Powell’s successor sooner than expected to influence interest rate policy.
Fed Actions Amidst Speculations
The speculation about Trump’s desire to name a new chair comes at a busy time for the central bank. The Fed has recently removed “reputational risk” from the criteria for bank exams and eased reserve capital rules for critical banks, seemingly in response to Trump’s complaints about politically motivated de-banking at large institutions. Despite these changes, Trump’s main issue remains unaddressed — the refusal of the Powell-led Federal Open Market Committee to lower interest rates.
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