The Trump administration has broadened its search for the next Chair of the Federal Reserve. Rick Reider of Blackrock, David Zervos of Jefferies LLC, and Larry Lindsey, former Fed Governor, are now considerations.
Reider and Zervos are frequently seen on CNBC and other business news outlets. Lindsey also regularly appears on such programs.
Potential Candidates
Additional candidates include Kevin Hassett, current White House national economic advisor, and Jim Bullard, current Fed President.
Other potential selections comprise Michelle Bowman, Philip Jefferson, and Lorie Logan, all current Fed Governors, with Logan also serving as Dallas Fed President.
Marc Summerlin, an economic advisor to George Bush, and Christopher Waller, a current Fed Governor, are also in the running.
Kevin Warsh, a former Fed Governor now serving as an advisor to the Hoover Institution, completes the list of candidates.
With the search for the next Fed Chair creating uncertainty, we are seeing heightened market nervousness. The latest July 2025 inflation report showed a sticky 3.1% CPI, while unemployment has ticked up slightly to 4.2%, complicating the Federal Reserve’s next move from its current 4.75% policy rate. This economic backdrop makes the choice of the next leader incredibly important for market direction.
We are seeing parallels to the situation back in 2017 when a new chair was also being selected. Looking back, that period saw a notable increase in bond market volatility as different candidates were floated in the press. We can use that historical episode as a guide for what to expect in the coming weeks.
Market Implications and Trading Strategies
For derivative traders, this means we should be paying close attention to implied volatility. The CBOE Volatility Index (VIX) has been hovering around 18, but we expect it to climb as speculation intensifies over who will get the nomination. Buying VIX futures or call options could be a prudent hedge against a sharp market swing.
The divide between potentially hawkish and dovish candidates is the central issue for interest rate markets. We are positioning for this by looking at options on SOFR futures, as a hawkish pick could send short-term rate expectations higher. A dovish surprise, however, would have the opposite effect, making a long strangle a viable strategy to play a large move in either direction.
This uncertainty extends directly to equities, especially rate-sensitive sectors like technology and real estate. We are seeing increased options volume on ETFs like the QQQ and XLRE. Traders should consider buying puts on these instruments if they believe a more aggressive, inflation-fighting chair will be appointed.
