Trump’s team is expanding its search for a new Federal Reserve chair. The candidate list now includes names like former St. Louis Fed President James Bullard and former Bush advisor Marc Sumerlin. According to the Wall Street Journal, there are about ten candidates in total. Other notable contenders include NEC Director Kevin Hassett, current Fed Governor Christopher Waller, and former Fed Governor Kevin Warsh. Treasury Secretary Scott Bessent is leading the search and plans to conduct initial interviews before sharing a final shortlist with President Trump.

Potential Inclusion of James Bullard

James Bullard’s possible candidacy suggests Trump may prefer a more innovative leader at the Fed. However, Bullard’s economic beliefs might not support the idea of significantly lowering interest rates, which seems to be Trump’s aim. Despite concerns about inflation, Trump may think he can control price increases in other ways. The search process might just be a formality, possibly resulting in a choice that aligns closely with Trump’s economic views. The growing list of candidates creates uncertainty in the market. With options ranging from traditional to unexpected figures, it’s challenging to predict future interest rates. This uncertainty makes the upcoming weeks tough for investors in rate-sensitive assets. This nervousness is reflected in bond market volatility. The MOVE index, which measures expected changes in Treasury yields, has risen to 125, the highest since the banking issues earlier in 2024. Traders are buying protection against sharp, unexpected interest rate shifts.

Range of Candidates

The candidate options vary widely. Christopher Waller would likely maintain current policies, while Kevin Warsh could push for lower rates. James Bullard is unpredictable because he has changed his views before, making it hard to foresee his potential leadership style. Recent economic data complicates this situation. The July 2025 CPI report indicated that inflation remains high at 3.1%, above the Fed’s target. The administration’s push for rate cuts clashes with the current inflation outlook, creating tension for monetary policy. We recall a similar scenario during 2018-2019 when the White House criticized the Fed for raising rates. This experience warns us that political goals may take precedence over usual economic indicators. The market still remembers the inflation spike of 2021-2022 and fears a repeat if the Fed lowers rates too soon. For derivative traders, this climate suggests that owning volatility is a smart strategy. Buying options that benefit from large price movements, like straddles on interest rate futures, could be an effective way to prepare for unexpected appointments. Although the cost of these options has increased, the chance for sudden revaluation is still high. The short end of the yield curve, especially the 2-year Treasury note, is particularly sensitive right now. Its yield is around 4.5%, reflecting expectations for persistent high rates. A nominee viewed as dovish could cause that yield to drop sharply, so traders should stay alert for any news. In the end, this search process may be more about political visuals than a true search for the right candidate. The chosen nominee will likely be someone who supports the administration’s goal of lower interest rates, regardless of the risks of inflation. We should prepare ourselves for a Fed that could become more accommodating soon. Create your live VT Markets account and start trading now.

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