Treasury Secretary Bessent is set to commence interviews to find a replacement for Federal Reserve Chair Powell on Friday. The process will involve a series of interviews, held either in person or via video conference, extending into the following week.
There are 11 potential candidates for the position. Among them are Fed governors Christopher Waller and Michelle Bowman, National Economic Council Director Kevin Hassett, and former Fed governor Kevin Warsh.
Expect Increased Market Volatility
Following the interviews, Bessent will deliver a shortlist of candidates to President Trump. He had indicated that the search for Powell’s successor would start soon after Labor Day.
With the formal search for the next Federal Reserve chair now underway, we expect a significant increase in market volatility. This uncertainty surrounding future monetary policy means the placid market conditions of August are likely over. Traders should prepare for wider price swings in interest rates, currencies, and equities over the coming weeks.
We believe positioning for this change through options is prudent, especially as the CBOE Volatility Index (VIX) currently sits near a low of 14. This situation feels similar to late 2017, just before the transition from Yellen to Powell, which was followed by a major volatility spike in February 2018. Consequently, we are looking at buying VIX calls or VIX futures for October expiration as a direct hedge against rising market turbulence.
Treasury Yield Curve Impact
The initial list of candidates includes known hawks like governors Waller and Bowman, which tilts the odds toward a more aggressive interest rate policy ahead. A hawkish appointee would likely signal a “higher for longer” rate environment, putting downward pressure on growth stocks that have performed well this year. This poses a direct threat to the Nasdaq 100, which has rallied over 12% in 2025 based on expectations that the Fed’s tightening cycle was complete.
Given this risk, we are actively pricing protective puts on the QQQ, the exchange-traded fund that tracks the Nasdaq 100. Any news suggesting a hawk is the frontrunner could quickly unwind the recent rally in technology and other rate-sensitive sectors. A move back toward last quarter’s lows would not be surprising under such a scenario.
This leadership change will also directly impact the Treasury yield curve, which has already seen significant flattening this year. A hawkish Fed chair would likely keep short-term rates elevated, increasing the probability of a deeper curve inversion between the 2-year and 10-year yields. We are therefore considering trades that would profit from falling prices in long-duration bond ETFs like the TLT.
