Market Implications of Federal Reserve Chair Selection
Treasury Secretary Bessent indicated there are 11 candidates for the Federal Reserve Chair position. He plans to start interviewing after Labor Day before presenting a shortlist to President Trump.
Christopher Waller is currently favoured with a probability of 30%. Following him is Kevin Marsh at 22%, and Kevin Hassett at 18%. Other candidates in consideration include David Zervos, James Bullard, Michelle Bowman, David Malpass, Marc Sumerlin, Larry Lindsey, Philip Jefferson, and Lorie Logan.
With a field of 11 potential Fed chairs, the main takeaway for us is heightened uncertainty around future monetary policy. The market is already pricing this in, as we’ve seen the VIX tick up to 19.5 this week, a level not seen since the minor banking jitters back in early 2024. This signals a growing demand for portfolio protection leading into September.
Different Market Reactions
The divergence between the frontrunners is what we need to watch. A potential chair like Christopher Waller, the current favorite, is seen as a hawk, which would likely push interest rate expectations higher. We’re already seeing some jitters in the December 2025 Fed Funds futures contract, which has sold off 5 basis points since this list was made public.
We can look back at the last major leadership transition in late 2017, when Jerome Powell took over from Janet Yellen, for a playbook on how markets might behave. During that period, we saw a noticeable uptick in implied volatility on short-dated options as traders hedged against policy shifts. This suggests that long volatility strategies, like buying straddles on the SPY, could be profitable over the next several weeks as the interview process unfolds.
The timing is critical, given the latest data we’ve seen. The August jobs report is just around the corner, and with core CPI stubbornly holding around 3.1% in the July 2025 reading, the new chair will have little room to maneuver. Any candidate perceived as soft on inflation could trigger a bond market sell-off, steepening the yield curve.
Our focus should be on the period immediately after Labor Day when the interviews begin. We should anticipate heightened intraday volatility based on headlines and rumors about which candidate is gaining favor. Trading strategies should therefore shorten their time horizons, with a focus on weekly options to capture these policy-driven swings.
