The race to select the next Federal Reserve chair took an extraordinary turn this week when the Department of Justice opened a criminal investigation into current chair Jerome Powell.
The DOJ issued grand jury subpoenas to the Fed on Friday relating to Powell’s congressional testimony about a $2.5bn building renovation project. The investigation threatens to overshadow the selection process and raises fundamental questions about central bank independence.
In a video statement on Sunday, Powell called the probe “unprecedented action” and said it represented pressure on the Fed to set interest rates based on presidential preferences rather than economic evidence. He vowed not to resign.
The investigation has intensified scrutiny of US president Donald Trump’s expected nomination to replace Powell when his term expires in May. The betting markets currently favour Kevin Hassett, Christopher Waller and Kevin Warsh for the role.
Below, Aberdeen Investments senior US economist Jon Butcher takes a look at the three leading candidates and how institutional constraints and market forces may affect their role.
Kevin Hassett
Kevin Hassett, currently director of Trump’s National Economic Council, was the leading contender to be nominated as the next Fed chair but has dipped to a 38% probability on prediction market Polymarket.
The 63-year-old economist holds a PhD from the University of Pennsylvania and spent years at the American Enterprise Institute working on fiscal policy, tax, energy and stock market structure, before advising multiple Republican presidential campaigns.
He served as chairman of the Council of Economic Advisers during Trump’s first administration from 2017 to 2019, returning in 2020 to advise on the coronavirus economic response. His track record includes co-authoring Dow 36,000 in 1999, published before the dot-com bubble burst, and building a widely criticised coronavirus death prediction model that forecast deaths would drop to near zero by May 2020.
Butcher noted that Hassett’s case for easier monetary policy echoes Alan Greenspan's ‘maestro’ moment.
“He argues that the administration’s supply-side friendly policy mix, and possible AI-driven productivity gains, create space for lower rates without inflation,” Butcher said. “But his proximity to Donald Trump and willingness to defend administration talking points well beyond economics raises questions about independence – concerns that may weigh on his candidacy.”
Kevin Warsh
Kevin Warsh is currently the betting markets’ favourite with 41%, having tended to trail behind Hassett. The 55-year-old was the youngest Fed governor in history when appointed at 35 in 2006, serving until 2011 as a key deputy to chairman Ben Bernanke.
Before joining the Fed, Warsh spent seven years at Morgan Stanley, becoming an executive director in mergers and acquisitions. He then served as special assistant for economic policy to president George W. Bush. During the 2008 financial crisis, he acted as the Fed’s primary liaison to Wall Street and helped navigate crucial decisions, including the conversion of Morgan Stanley to a bank holding company.
Since leaving the Fed in 2011, Warsh has been the Shepard Family Distinguished Visiting Fellow at Stanford’s Hoover Institution. He also advises several private and public companies and is a member of the Group of Thirty (an international body of academics and financiers that aims to deepen understanding of economic and financial issues).
Butcher noted that Warsh’s post-Fed career has been dominated by hawkish criticism of monetary policy, the size of the balance sheet and broader central bank overreach.
“The first of those, at least, isn’t especially convenient for Trump, although Warsh has tried to argue that a smaller balance sheet would make space for lower interest rates,” he said. “Nevertheless, markets have started to view him as the ‘independent’ option, partly because he has maintained a less deferential posture towards Trump.”
Christopher Waller
Christopher Waller is a current Trump-appointed Fed governor who has been on the board since December 2020. The 66-year-old economist holds a PhD from Washington State University and spent decades in academia before joining the Federal Reserve Bank of St. Louis as research director in 2009, where he helped make the bank’s FRED database an internationally recognised resource.
His policy stance has evolved considerably. Initially viewed as a monetary dove favouring low rates in 2019, he became an early advocate for tapering asset purchases as inflation rose in 2021, then aggressively hawkish on rate rises in April 2022 when inflation shot up. A July 2022 paper he co-authored predicted a ‘soft landing’ with unemployment rising only 1 percentage point, a forecast that proved correct despite scepticism from prominent economists including Larry Summers.
“He has been a consistent advocate for looser monetary policy in 2025 to reduce risks to the labour market, and [in December] commented that the Fed had another 50-100bps of cuts to go to take the rate to neutral,” Butcher said.
In August 2025, Waller agreed with Trump on interest-rate cuts and suggested the inflationary impact of aggressive tariffs would be temporary and could be “looked through” by the Fed.
Waller’s odds of being nominated as the next Fed chair are 9% on Polymarket, putting him just ahead of BlackRock fixed income chief investment officer Rick Rieder on 8%.
The presidential backdrop
Trump has repeatedly attacked Powell for not cutting interest rates more aggressively, calling him a “stubborn mule" for declining to reduce borrowing costs faster. The president denied knowledge of the DOJ investigation but said Powell is “not very good at the Fed”. Republican senator Thom Tillis, a Senate banking committee member, said he would oppose confirmation of anyone Trump nominated to replace Powell “until this legal matter is fully resolved”.
The pressure on Powell over monetary policy signals the political stakes involved in the chair appointment. Cost-of-living concerns are likely to feature more prominently in 2026 in the run-up to mid-term elections and Trump views interest rates as a key factor weighing on voter confidence.
“The challenge will be managing the bond market reactions to a dovish Fed chair,” Butcher said.
“If short-term rates are perceived to be lowered excessively, bond markets may show their dissatisfaction via demanding higher yields at the long end of the Treasury curve, which could ultimately mean higher mortgage rates.”
The institutional constraint
However, Butcher argued that the competing pressures facing any new chair may ultimately define the policy outcome more than the individual selected.
“Stepping back from the personalities, two forces will shape how the eventual nominee acts,” he explained.
“First, whoever chairs the Fed will carry institutional obligations and face economic and market realities that often matter more than individual preferences. Second, that person will have convinced Trump that policy will be set in a way he finds acceptable. The tension between these forces may ultimately matter more for the monetary outlook than the identity of the chair.”
While Aberdeen currently expects two more rate cuts in the second half of 2026, it caveated that this could easily change depending on who is in the hot seat.