Rieder or Waller, which one to choose? Trump wants both, Federal Reserve chairman candidate changes

Trump’s “perfect standard” for the Federal Reserve chair pick is facing real-world difficulties: he wants a candidate who is both loyal to the White House and trusted by the markets, and who can lower long-term borrowing costs. But such a “unicorn” may not exist. As the top candidates Kevin Hassett and Kevin Warsh each reveal obvious weaknesses, BlackRock executive Rick Rieder and Fed governor Christopher Waller have emerged as more viable choices. On Wednesday at the Davos World Economic Forum, Trump said the list of Fed candidates had been narrowed to “perhaps only one,” though he declined to specify who. The president said he hopes the chosen Fed chair would be like former chairman Alan Greenspan, and named BlackRock’s Rick Rieder and former Fed governor Warsh as strong contenders. According to Bloomberg on Thursday, Trump appears to be searching for an “elusive unicorn”: someone who can appeal to his political base, successfully pass through Senate confirmation, and also earn market credibility to lower long-term borrowing costs. Such a candidate may not even exist—at least not among the two “Kevins,” the betting market’s top picks. Bloomberg’s view is that by process of elimination, there remain only two feasible candidates: Rick Rieder, seen as a bond market “globalist,” and “Fed institutionalist” Christopher Waller. ## The Two “Kevins” Each Have Fatal Shortcomings National Economic Council director Kevin Hassett has long been considered a front-runner and seen as a thorough Trump loyalist, but investors question whether he has the fortitude to uphold the Fed’s tradition of independence and tackle the daunting inflation challenge. After the administration threatened current chair Powell through the Department of Justice this month, market doubts about Hassett deepened. At a White House event last week, Trump told Hassett, “Honestly, I actually want you to stay in your current role.” This comment seemed to lower Hassett’s chances. Meanwhile, Kevin Warsh currently leads in betting markets but is far from Trump’s “ideal match.” Despite recent media appearances courting the Trump White House, Warsh is essentially a lifelong hawk and a staunch critic of quantitative easing, unlikely to support Trump’s wish for sharply lower policy rates. His free-market conservatism at the Hoover Institution fits more with the early Republican era than Trump’s MAGA populism. ## Rieder: The Bond Market “Globalist” Rick Rieder, BlackRock’s global chief investment officer for fixed income, is a dark horse whose support has surged recently. Last Thursday, Rieder reportedly had a successful interview with Trump, and betting markets now give him the second highest odds behind Warsh. He is seen as a respected market insider who understands how markets operate and could win Senate backing. In recent BlackRock commentaries, Rieder has advocated for looser monetary policy, though his reasoning is more economically grounded than the president’s team often offers. He believes the labor market poses a greater risk than inflation and has stated that tightening may have unexpected distributional effects—stimulating spending by wealthy asset owners while hurting small businesses and young workers. In his December 10 report last year, he wrote: “This puts Fed policymakers in a challenging position. We have long thought that the policy rate tool is too blunt to solve issues better addressed through fiscal channels.” Still, Rieder would represent a break from precedent. He is the only candidate who has not worked at the Fed, and is one of only two without a PhD in economics. His closest experience to monetary policymaking is serving on the New York Fed’s Investor Advisory Committee on Financial Markets. Politically, Trump’s MAGA allies may resent his ties to the world’s largest asset manager, which they label as a “globalist” financial institution blamed for spreading ESG investing. ## Waller: The Fed “Institutionalist” and His Unexpected Strengths If disappointment with the two Kevins leads Trump to settle on current Fed governor Waller, that would be among the administration’s luckiest developments. Waller has served on the Fed board since 2020 and holds deep respect for the institution. Since inflation became a top concern in 2021, he’s shown exceptional policy instincts. In 2022, he accurately argued that the Fed could fight inflation with high rates without triggering a recession. Recently, his thought leadership helped prepare the committee for a series of risk-managed rate cuts this year; he aims to keep cutting rates to protect the labor market. Waller is aligned with the president on rate policy, but with sound reasoning. He has earned credibility to help achieve the Fed’s inflation fight and lower long-term borrowing costs. He is the candidate Trump doesn’t know he wants—but he’s also a firm supporter of the status quo, which may annoy a president bent on shaking up the world’s most important central bank. If he doesn’t get the job, it’s likely because Waller clearly won’t serve as Trump’s pawn to run an independent Fed. Bloomberg notes it’s regrettable that the White House is rushing this key decision, especially with four months left in Powell’s term. But Waller and Rieder are both strong choices, far better than other candidates. If the administration’s chaotic process leads to either one by chance, it would be a fortunate outcome for markets and the American people. ## Warsh Favors Radical Balance Sheet Reduction, Rieder More Cautious As investors await Trump’s nomination of the next Fed chair, a key question arises—how will the candidate manage the Fed’s $6.6 trillion balance sheet? Kevin Warsh is strongly critical of the Fed’s current strategy and strongly advocates shrinking the balance sheet. By contrast, BlackRock’s Rick Rieder has argued the Fed should stop reducing holdings to avoid turmoil in the funding markets. Warsh’s criticism of the Fed’s aggressive use of its balance sheet has lasted over 15 years. Wells Fargo strategist Angelo Manolatos notes, “A key differentiating feature of Warsh is his strong support for downsizing the Fed’s balance sheet.” In speeches over the past year, Warsh has argued that years of aggressive bond-buying have gone too far and risk dragging the Fed into “the chaotic political business of fiscal policy.” He supported the initial bond-buying programs after the 2008 crisis, but later warned that resuming purchases could spur inflation and distort market signals. More broadly, Warsh believes the Fed has fueled US government debt accumulation by artificially suppressing rates for years, and has encouraged what he calls a “money-dominant” regime—financial markets are overly reliant on central bank support. **Risk warning and disclaimer** The market carries risk; investments should be approached with caution. 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