A Bloomberg report mentions several candidates for the Fed chair position, including Fed Governor Bowman, Vice Chair Jefferson, and Dallas Fed President Logan. They join former Fed President Bullard and Marc Sumerlin, a past economic adviser to President George W. Bush. Recently, Kevin Warsh, Kevin Hassett, and Fed Governor Christopher Waller were also considered. Jefferson was nominated by President Biden in 2022 and is known for his insights. Bullard is recognized for advocating early economic actions. Warsh, Hassett, and Waller are seen as supporting softer economic approaches, while Sumerlin and Logan’s views are unclear.

Impact of Fed Chair Candidates

With various candidates for the next Fed Chair, including known doves like Kevin Warsh and established hawks like Governor Waller, the future of monetary policy is becoming less certain. This growing list creates major uncertainty for interest rates, especially with the upcoming November election. For those of us in the derivatives market, this means preparing for higher volatility. Currently, the market is in a delicate state, with the CME FedWatch tool showing traders divided on when the first rate cut will happen in 2026. This uncertainty is understandable given recent economic data; the July 2025 CPI report revealed inflation remains high at 3.1%, while second-quarter GDP growth slowed to just 1.5%. The next chair’s personal views could quickly shift the decision to cut rates sooner to boost growth or maintain higher rates longer to control inflation. In the coming weeks, we should concentrate on options contracts related to interest rate futures, like those on SOFR. Given the competing outcomes—a hawkish chair versus a dovish one—strategies such as buying straddles may work well. This strategy allows us to benefit from a major rate movement without needing to predict its direction.

Market Reactions to Leadership Transition

Looking back at the leadership change from Yellen to Powell in late 2017 provides a useful comparison. During that time of uncertainty, the MOVE index, which measures expected volatility in the Treasury market, rose significantly as traders hedged against unpredictable policy shifts. We can expect a similar reaction as speculation around the next chair increases. This uncertainty will also affect equity and currency derivatives. We will likely see heightened interest in VIX futures as protection against market shocks when the final nomination is announced. The value of the U.S. dollar is now uncertain and will largely depend on the next Fed leader’s stance, whether dovish or hawkish. Create your live VT Markets account and start trading now.

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