Analysis of the Impact of Uncertainty Surrounding the Federal Reserve Chair Nominee on U.S. Stocks and the U.S. Dollar Exchange Rate

Jerome Powell, Chair of the Federal Reserve, will see his term expire in

, and U.S. President Donald Trump has clearly stated his plan to announce the nominee for the next Fed Chair in [1][2]. This personnel change is regarded as one of the most important economic decisions during Trump’s second term, and its outcome will have a profound impact on U.S. monetary policy expectations, inflation outlook, and market sentiment[1][3].

The current uncertainty mainly stems from the following factors:

• Trump has publicly criticized Powell for “acting too slow” on multiple occasions and expressed doubts about the Federal Reserve’s independence[1]
• The policy stance of the nominee may differ significantly from that of the current Federal Reserve decision-making body
• The market is concerned that any new chair may be subject to the will of the White House to some extent[3]

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According to predictions from betting market Polymarket and analysts, the current leading candidates and their respective probabilities are as follows[1][2][3]:

Candidate	Current Position/Background	Winning Probability	Policy Stance	Potential Market Impact
Kevin Hassett	Director of the White House National Economic Council (NEC)	~40%	Dovish	Supports more aggressive interest rate cuts → Positive for stock market, may pressure the U.S. dollar
Kevin Warsh	Former Federal Reserve Governor (2011-2017)	~30%	Moderate/Hawkish	Prioritizes inflation control → High credibility in the bond market
Christopher Waller	Current Federal Reserve Governor	~15%	Hawkish	May maintain a tightening bias
Rick Rieder	Chief Investment Officer, BlackRock	~15%	Dovish	May push for loose monetary policy

In a recent interview, Hassett stated, “The independence of the Federal Reserve is really important,” and emphasized that interest rate decisions should be guided by “a consensus based on data and facts”[2]. However, sources indicate that some presidential advisors are concerned that Hassett’s close relationship with Trump may prevent him from acting truly independently[2].

In contrast, as a former Federal Reserve Governor, Warsh enjoys higher credibility in the financial sector and is believed to be better able to build confidence in the bond market and potentially lower long-term Treasury yields[1].

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The S&P 500 Index

, posting double-digit gains for three consecutive years, with a cumulative three-year return of as high as 78%[3]. However, this rally was mainly driven by:

• The Federal Reserve launched an interest rate cut cycle in 2025
• Technology stocks continued to lead the gains
• Investors’ optimistic expectations of a “soft landing”

According to Evercore ISI’s forecasting model[3]:

Scenario	Trigger Condition	S&P 500 Target	Probability
Bull Market	Dovish chair takes office + economic soft landing	9,000 points (+30%)	~20%
Base Case	Moderate chair takes office + steady economy	7,750 points (+13%)	~55%
Bear Market	Hawkish chair takes office + inflation rebound	5,000 points (-27%)	~20%
Tail Risk	Severe doubts about independence	3,500 points (-49%)	~5%

1. Positive Factors
   : Expectations of larger interest rate cuts → Reduced corporate financing costs → Supports valuation expansion
2. Risk Factors
   : Interest rate cuts may trigger a rebound in inflation expectations; close ties to Trump may weaken market confidence in the Fed’s independence

1. Positive Factors
   : Higher credibility in the bond market → May lower long-term Treasury yields
2. Risk Factors
   : Slower pace of interest rate cuts may limit the upside potential of the stock market

: According to statistics from the past 100 years, the S&P 500 has posted double-digit gains for three consecutive years on 9 occasions, with 7 of those followed by a fluctuation of over 10% in the fourth year[3]. The most recent example was the consecutive gains from 2019 to 2021, followed by a 19% plunge in 2022 due to the Federal Reserve’s aggressive interest rate hikes.

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The U.S. Dollar Index (DXY)

, marking the largest annual decline in eight years[1][4]. The main reasons include:

• Significant narrowing of interest rate spreads between the U.S. and other major economies
• Diminished attractiveness of U.S. Treasury yields
• Expansion of the U.S. fiscal deficit
• Sustained market concerns about the Federal Reserve’s independence[1][4]

Candidate	Impact on U.S. Dollar Exchange Rate	Mechanism
Hassett (Dovish)	Under Pressure	Strengthened expectations of interest rate cuts → Narrowed interest rate spreads → U.S. dollar weakens
Warsh (Moderate)	Relative Support	Credibility in inflation control → Interest rate spreads maintained → U.S. dollar remains relatively stable

: Although the market expects Hassett to be the more likely nominee, current one-year inflation expectations are falling rapidly, indicating that the market has not fully priced in the concern that a dovish chair will lead to rising inflation[1].

The long-term structural pressures facing the U.S. dollar include:

1. Fiscal Factors
   : Continuous expansion of U.S. government debt
2. Policy Divergence
   : The market expects 2 interest rate cuts in 2026, while the Federal Reserve’s dot plot only hints at 1 cut
3. Trust Crisis
   : The U.S. dollar’s status as a global reserve currency may be challenged[4]

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Market volatility (VIX Index) averaged around

in 2025, staying at a historically low level[3]. However, the following factors may push volatility higher in 2026:

• Before and after the announcement of the nominee in January
• Senate confirmation hearings
• Deviations between economic data and Federal Reserve expectations
• Changes in the Trump administration’s trade policies

An analysis by The Wall Street Journal points out that no matter who is elected as Federal Reserve Chair, the institution’s “independence will no longer exist”[3]. This could lead to:

• Increased risk of capital outflows
• Damage to U.S. dollar credibility
• Increased volatility in long-term Treasury yields

There are significant divergences between the market and the Federal Reserve regarding the 2026 interest rate cut path:

• Traders have fully priced in at least 2 25-basis-point interest rate cuts
• The Federal Reserve’s dot plot only hints at 1 interest rate cut
• The divergence stems from the market’s stronger concerns about economic slowdown[1][4]

How the new chair balances inflation and the labor market will directly affect market expectations for monetary policy[1].

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Time	Event	Degree of Market Impact
January 2026	President announces the nominee	★★★★★
Early February 2026	Senate confirmation hearings	★★★★☆
February-March 2026	Senate vote on confirmation	★★★☆☆
May 2026	Powell’s term expires, new chair takes office	★★★★★

• Closely monitor the announcement of the nominee in January and related market reactions
• Pay attention to the impact of key data such as this week’s nonfarm payrolls on interest rate cut expectations
• Maintain a moderate position and wait for uncertainty to clear

• Monitor the changing trend of inflation expectations
• Assess the divergence between the Federal Reserve’s policy path and market expectations
• Consider diversified allocation of U.S. dollar assets and hedging with non-U.S. currencies

• Allocate safe-haven assets such as gold to cope with U.S. dollar credit risk
• Pay attention to volatility products to hedge against short-term event shocks
• Maintain portfolio flexibility

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The impact of uncertainty surrounding the Federal Reserve Chair nominee on the U.S. stock market and U.S. dollar exchange rate can be summarized in the following core points:

1. Degree of Impact: High
   • Monetary policy expectations will directly determine stock market valuation levels and U.S. dollar exchange rate trends
   • Concerns about the Federal Reserve’s independence are a structural factor affecting market confidence

2. Directional Impact Depends on the Candidate’s Policy Stance:
   • Dovish Chair
     : Tends to implement more aggressive interest rate cuts → Positive for the stock market but pressures the U.S. dollar
   • Hawkish/Moderate Chair
     : Prioritizes inflation control → May support the U.S. dollar but limit stock market gains

3. Time Dimension:
   • Short-Term (1-2 Months)
     : Market volatility may intensify before and after the nominee announcement
   • Mid-Term (Full Year)
     : The policy implementation path and economic data will be decisive factors

4. Tail Risk:
   • If the Federal Reserve’s independence is severely questioned, it may trigger broader market turmoil
   • Investors need to prepare for multiple scenarios

Overall, current market pricing has not fully reflected the full impact of the Federal Reserve Chair nominee. Investors should closely monitor the January nominee announcement and subsequent developments, and adjust their investment strategies in a timely manner based on scenario evolution.

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[1] FX168 Financial News - “U.S. Dollar Index Rebounds 0.24% to 98.48 at the Start of 2026; After Ending 2025’s 9% Plunge, Investors Focus on Nonfarm Payroll Data” (https://www.fx168news.com/article/美元指数反弹-981898)

[2] CNBC - “Fed chief candidate Hassett says central bank’s independence is ‘really important’” (https://www.cnbc.com/2025/12/16/fed-chief-candidate-hassett-says-central-banks-independence-is-really-important-would-move-rates-by-consensus.html)

[3] Nikkei Chinese - “U.S. Stocks Post Double-Digit Gains for Three Consecutive Years; Will They Rise or Fall in 2026?” (https://zh.cn.nikkei.com/politicsaeconomy/stockforex/60944-2026-01-06-05-00-38.html)

[4] Kwong Wah Yit Poh - “Short-Term Rebound Fails to Reverse Weakness; U.S. Dollar Falls Over 9% in 2025” (https://www.enanyang.my/news/20260101/Finance/1120299)

[5] CNN - “A key decision of Trump 2.0 approaches — picking a Fed chair” (https://www.cnn.com/2025/12/13/politics/federal-reserve-chairman-kevin-hassett-kevin-warsh)

[6] RIA - “2026 Forecast: Tis The Season For Wild Guesses” (https://realinvestmentadvice.com/resources/blog/2026-forecast-tis-the-season-for-wild-guesses/)