Treasury Secretary Scott Bessent has announced the final five candidates for the Federal Reserve Chair position. The candidates are Christopher Waller, Michelle Bowmann, Kevin Warsh, Kevin Hasset, and Rick Rieder. These names have been mentioned often, which has resulted in little market reaction. The next Fed Chair is expected to support interest rate cuts that align with the President’s views.

Political Influence on the Fed

As inflation and labor market issues worsen, political influence on the Fed might become clearer. Inflation is expected to rise, which could put more pressure on the USD. Even though there have been recent interest rate cuts, another reduction is likely soon. This decision could affect market dynamics in the coming months. The FXStreet Insights Team offers insights from market experts. They summarize information that includes commercial and analyst views. This information looks ahead and comes with risks, so it’s important to do thorough research before investing. FXStreet stresses that all investment decisions should be made independently, given the high risks involved.

Potential Market Volatility

The announcement of five candidates for the Fed Chair has created uncertainty. While the names are known, the main concern is a Fed that could be influenced by politics, potentially leading to more interest rate cuts. This could result in increased market volatility in the upcoming months. A conflict is emerging between the Fed’s goals, presenting traders with opportunities. The latest job report for September 2025 shows that the labor market is still strong, but recent CPI data reveals that inflation remains above 3%, despite 75 basis points of rate cuts since June 2025. This gap between a strong economy and a relaxing policy could lead to a significant market correction or a policy shift. For derivative traders, this signals the need to prepare for larger price swings rather than to predict specific market directions right now. Buying volatility through options, like straddles on the US Dollar Index (DXY) or major currency pairs such as EUR/USD, could be a smart strategy. This way, traders can benefit from significant movements, whether the dollar weakens due to further rate cuts or strengthens as inflation pressures the Fed. Looking at interest rate futures, the market is anticipating another rate cut this week, keeping short-term rates low. However, the risk of rising inflation should push longer-term yields up, potentially steepening the yield curve. This indicates that trades targeting a wider spread between 2-year and 10-year Treasury yields might become more appealing. The US Dollar is caught between the dovish Fed in the short term and rising inflation in the medium term. While further rate cuts may weaken the dollar initially, ongoing inflation pressures should eventually provide support. Using longer-dated call options on the dollar might be a good strategy for anticipating this eventual strength while managing expected short-term weaknesses. Looking back at 2022-2023, we see how quickly a central bank can shift from a dovish stance when inflation rises. The risk of a policy mistake is higher now, as a new Fed Chair could prioritize political loyalty over addressing inflation. This historical context suggests that the current approach to rate cuts may not be sustainable if inflation continues to rise. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now