The Race to Replace Powell: How the Prediction Markets Called Trump's Fed Chair Pick Before He Did

On the morning of January 30, 2026, President Donald Trump posted to Truth Social that he was nominating Kevin Warsh — former Fed governor, Wall Street veteran, and longtime member of Trump's orbit — to be the 17th Chairman of the Board of Governors of the Federal Reserve System. The announcement ended a months-long, reality-show-style spectacle that saw an 11-candidate field whittled down to four, prediction markets swing wildly in the final days, and an unprecedented political pressure campaign against a sitting Fed chair that rattled global financial markets.

What made the search extraordinary wasn't just the outcome. It was that prediction markets, for much of the race, got it right — and then got it wrong — and then got it right again.

The Search Process: From 11 to Four The formal search process began in August 2025, orchestrated by Treasury Secretary Scott Bessent. What started as a broad field of roughly a dozen candidates — spanning current and former Fed officials, academic economists, and Wall Street investment professionals — was gradually narrowed by Bessent to five, then to four finalists:

Kevin Warsh, former Fed Governor (2006–2011) and Hoover Institution fellow Kevin Hassett, Director of the National Economic Council and architect of the 2017 tax overhaul Christopher Waller, sitting Fed Governor Rick Rieder, BlackRock's Chief Investment Officer for Global Fixed Income

Trump, who has never met a drama he wouldn't amplify, leaned into the theatrics. He publicly referred to Warsh and Hassett as "the Two Kevins," calling them both "great." He met with Warsh at the White House. He told reporters his pick was "somebody that is very respected, somebody that's known to everybody in the financial world." He added a telling clue the night before the announcement: "A lot of people think that this is somebody that could have been there a few years ago." Warsh, who was passed over for the chair in 2017 when Trump ultimately selected Powell, fit that description perfectly.

What the Prediction Markets Said The Kalshi prediction market provided a real-time, crowd-sourced probability tracker throughout the process — and its readings told a story of shifting momentum, political risk, and last-minute reversals. Kevin Hassett was the frontrunner for the majority of the race. As recently as December 24, 2025, Kalshi had him at 58% probability of securing the nomination, with Warsh in a distant second at 25%. Hassett's appeal was straightforward: he was the loyalist choice. A close Trump ally, a vocal critic of the Powell-led Fed, and an economic voice who had argued loudly that strong AI-driven productivity growth left plenty of room for aggressive rate cuts. He had the credibility of GOP lawmakers and the institutional trust of officials who had watched him navigate economic policymaking for years.

Then came Rick Rieder, the dark-horse candidate who briefly vaulted to the top of prediction markets in the days just before Trump's announcement. Rieder had powerful attributes: unimpeachable Wall Street credibility, deep knowledge of complex fixed-income markets, and frequent television appearances that were reportedly playing well inside the White House. Crucially, he was believed to share Trump's preference for significantly lower interest rates — a non-negotiable litmus test for any nominee. But Rieder's surge collapsed almost as quickly as it formed. Conservative commentator and former Trump economist Larry Kudlow publicly skewered Rieder in a column, noting his past donations to Nikki Haley and "ultra-left-wing Democrats" and pointing out that he had previously called the 21% corporate tax rate too low and suggested the U.S. could "definitely" withstand a corporate tax hike. In a political environment where MAGA purity mattered, these were disqualifying liabilities.

The night before the announcement, Trump dropped the decisive clue — and markets reacted instantly. Kalshi shifted to Warsh as the prohibitive favorite overnight, erasing Rieder's lead in hours. By Friday morning, when Trump posted the nomination to Truth Social, the market had already priced in the outcome.

Why Warsh Won The selection of Kevin Warsh reflects a set of competing priorities that ultimately resolved in his favor. Understanding why he won requires understanding the specific pressure Trump applied to every candidate in his process.

The rate-cut litmus test. Trump made no secret of his top demand: the next Fed chair must believe in lower interest rates. Trump publicly disclosed that he pressed Warsh on this point directly during their White House meeting. "He thinks you have to lower interest rates," Trump said of Warsh. "And so does everybody else that I've talked to." While Warsh has historically been considered a hawk — skeptical of quantitative easing and generally inclined toward tighter policy to control inflation — he had visibly shifted his public posture in the months leading up to his nomination, increasingly arguing that AI-driven productivity gains provide an economic window for rate cuts without reigniting inflation. Analysts noted the strategic nature of this evolution. Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, observed that it was "reasonable to assume that he told the President he favors reducing interest rates today, otherwise he would not have been nominated."

The markets preferred him to alternatives. Among the finalists, Warsh was the candidate least likely to cause market turbulence. His five years as a Fed governor — including navigating the 2008 financial crisis — gave him institutional credibility that an outsider like Rieder or a political loyalist like Hassett couldn't fully replicate. When Trump's announcement became clear, the dollar gained 0.85% and safe-haven assets sold off sharply, with gold sinking nearly 9% in one of its worst single-day drops since 2013. Markets were signaling relief: this was a candidate they knew and believed wouldn't simply do the president's bidding.

Personal and family ties. Warsh is connected to Trump's inner circle through his father-in-law, Ronald Lauder — heir to the Estée Lauder fortune and a longtime Trump donor and confidant. Critics have pointed to this relationship as evidence of the politicization of the Fed. Supporters argue it reflects the trust that typically precedes any major appointment.

He'd been waiting in the wings since 2017. When Trump passed over Warsh for the chairmanship in his first term in favor of Powell, it was widely understood that Warsh remained a candidate-in-waiting. That history was clearly on Trump's mind when he told reporters the night before the announcement that his pick was someone who "could have been there a few years ago."

The Confirmation Battle Ahead Warsh's nomination may be the easier part. The confirmation process looms as a significant political obstacle, shaped heavily by the extraordinary circumstances surrounding Powell's final months. Trump's campaign against Powell has been unprecedented in its aggression: public attacks on social media, repeated calls for his ouster, and most dramatically, the announcement earlier in January that the Trump administration had launched a Department of Justice criminal investigation into Powell and the Fed over cost overruns at the central bank's Washington headquarters. Powell publicly called the investigation a "pretext" for political intimidation, a characterization echoed by a bipartisan coalition of former Fed chairs and sitting GOP senators.

Senator Thom Tillis of North Carolina has already signaled he will oppose Warsh's confirmation until the DOJ investigation is fully resolved. And Senate Majority Leader John Thune acknowledged to NBC News that without Tillis's support, Warsh could "probably not" win confirmation. Senate Banking Committee Chairman Tim Scott — who said he "looks forward to leading a thoughtful, timely confirmation process" — will need to thread a difficult needle between moving Warsh quickly and placating senators angered by the politicization of the institution.

The timing matters. Powell's term as chair expires May 15, 2026. The Federal Open Market Committee meets March 17–18, April 28–29, and June 16–17. If Warsh isn't confirmed and sworn in before late May, the earliest he could preside over a rate-setting meeting is June. There is also the logistical question of where Warsh sits on the board. There are currently no vacant seats on the Fed's Board of Governors. The solution identified by the administration: Governor Stephen Miran, whose term expired February 1, said he would remain until his successor was confirmed — leaving his seat as the designated landing spot for Warsh's concurrent board appointment.

What a Warsh Fed Means Kevin Warsh arrives at the Fed with a complicated identity. He is simultaneously a known quantity — a former governor with crisis experience and deep market relationships — and a potential disruptor. His public calls for "regime change" at the Fed and his criticisms of what he called the institution's "credibility deficit" suggest a leadership style that could be adversarial within an institution where consensus building is foundational to policy.

The market's initial reaction to his nomination — a steeper yield curve, dollar strength, collapse in commodity prices — tells us how investors are reading his priorities. A Warsh-led Fed is expected to be more focused on balance sheet reduction (the $6.6 trillion portfolio the Fed accumulated through quantitative easing), more skeptical of ancillary mandates like climate risk modeling, and less instinctively dovish than the Powell era.

But the central question that analysts keep returning to is simpler: when Trump inevitably turns his social media accounts against Warsh for not cutting rates fast enough or deep enough, what happens? "Which Kevin Warsh is going to show up?" asked David Wessel of the Brookings Institution. "Is he going to be independent, focused on delivering stable prices and maximum employment? Or is he going to lean in the direction of President Trump?"

The prediction markets called his nomination. Answering that question will take much longer.