Trump's Pressure on the Federal Reserve Backfires, Hawkish Candidate Warsh Overtakes Hassett

According to reports, the situation has shifted in the opposite direction of what Trump hoped for after the US Department of Justice launched an investigation into Federal Reserve Chairman Powell. The probability of Powell staying on as chairman until 2028 has increased, and the hawkish next chairman candidate Warsh has overtaken Hassett in terms of winning odds. Trump may find himself in a game of chess with the Federal Reserve throughout the year.

Polymarket data shows that shortly after Powell responded to the investigation in a video on January 11, the probability of him leaving the Federal Reserve Board by the end of May and by the end of the year both plummeted. Currently, bettors believe the probability of Powell leaving the Federal Reserve by May 30 has dropped from 74% earlier this month to 45%, and the probability of him leaving by the end of the year has decreased from 85% to 62%.

The prediction market has also adjusted its expectations for the probability of Trump ally Kevin Hassett being nominated to succeed as Federal Reserve Chairman. With the news of the US Department of Justice investigation spreading, the hawkish Kevin Warsh's support rate in Polymarket has surpassed Hassett.

Policy analyst Dan Clifton stated that since last summer, there has been an informal agreement between Trump and Powell—if Powell agrees to leave the Federal Reserve when his term as chairman ends in May this year, Trump will no longer criticize the Federal Reserve's multi-billion-dollar headquarters renovation project. Trump had previously harshly criticized the renovation plan, but in the second half of last year, his criticism of the Federal Reserve had decreased. This bottom line was broken last Sunday, making it more likely for Powell to stay on as a regular board member of the Federal Reserve. Continuously attacking Powell personally may ultimately be a futile effort.

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