The market thinks BlackRock's Rick Rieder will be the next Fed chair. Here's what's at stake

A five-month process of finding the next Federal Reserve chair appears to be down to its final days, with one candidate emerging as the betting favorite even as others remain in the mix.

BlackRock fixed income chief Rick Rieder is seen by prediction markets as the frontrunner to replace Jerome Powell at the helm of the central bank. Kalshi has the Wall Street veteran holding a 48% chance, well ahead of the next-closest competitor, former Governor Kevin Warsh, at 31%.

But sentiment has been volatile, and it was Warsh who held a decided advantage less than a week ago.

What has swung the pendulum seems tenuous: In a CNBC interview at the World Economic Forum, Trump called Rieder “very impressive,” and a Bloomberg News report, citing unnamed sources, said White House officials generally liked Rieder.

While that was enough to sway wagers on sites like Kalshi and Polymarket, some on Wall Street are less convinced and still see it as a competitive race yet to be decided by a notoriously fickle president. With Warsh still well in the mix, some analysts also think the market's move away from National Economic Council (NEC) director Kevin Hassett is at least too hasty.

The Kevins are still alive

While acknowledging market sentiment about Rieder, Tobin Marcus, head of U.S. policy and politics at Wolfe Research, said in a note that “we remain unconvinced” on the money manager, adding, “We think both Kevins are still strong possibilities.”

“Just last week, Trump was continuing to strongly emphasize 'loyalty' as a criterion, which is an obstacle for Rieder,” Marcus added. “If this is still the President's mindset, that seems like an obvious problem for Rieder, who is in no way a loyalist ... We also continue to think betting markets are misinterpreting Trump's comments on Hassett.”

That's a reference to Trump, in a recent White House conversation with reporters, emphasizing that he would miss Hassett at the NEC and would prefer to see him stay in that role. However, neither Trump nor any White House officials who have spoken about the matter have dismissed Hassett as a contender.

Marcus wrote off the Trump comment about Hassett as “a cheeky quip” that may not represent his feelings about filling the Fed chair.

Former Fed Vice Chair Roger Ferguson voiced similar views in a CNBC interview Monday, saying he still thinks the decision comes down to “one of the Kevins.”

“Only one person knows, and the rest of us are speculating,” Ferguson added. He called Rieder a “qualified person [and] Wall Street favorite ... but I really think it's unlikely that he'll be the first one across the finish line.”

There's also the possibility that Trump could play a wild card in the form of hiring someone not thought to be among the finalists. He has stated previously that he would like to name Treasury Secretary Scott Bessent to the job but that the former hedge fund manager doesn't want it.

Neither Rieder nor White House officials returned a request for comment.

Looking at Rieder

Should he look Rieder's way, Trump would get someone who fits his views in many ways, including a desire for lower interest rates and a willingness to use the Fed's balance sheet to guide the economy.

After the Fed approved a quarter percentage point cut in December, the third such move in a row, Rieder wrote, “rates are still too high for the housing market to [recover] its buoyancy, and small businesses (important providers of new jobs) and young households are still struggling.” He noted that the fed funds rate “is excessively blunt to deal with issues better resolved through fiscal channels.”

Rieder would be an interesting choice for a number of reasons, not least because he represents a firm that is the face of globalist finance and would serve under a president known for his anti-globalist views.

Though Trump has many times expressed his distaste for Powell and threatened to fire him more than once, Rieder would carry a huge similarity to the current chair in that neither has a PhD in economics, instead holding market-rich backgrounds. In Rieder's case, that meant a long stint at Lehman Brothers before the Wall Street investment banking titan imploded in 2008, an event associated with the beginning of the global financial crisis.

At BlackRock, Rieder engineers a $2.5 trillion bond portfolio that includes the $14.5 billion iShares Flexible Income Active exchange-traded fund. The entire firm manages $14 trillion in client money and runs the government's Thrift Savings Plan, a federal employees' retirement fund.

Moreover, the Fed called on BlackRock during the Covid crisis in 2020 to manage its controversial purchases of corporate bonds aimed at steadying capital flows at a time of extreme economic peril. Like other major financial firms and primary dealers, BlackRock officials, including its influential CEO Larry Fink, are in continuous contact with the Fed.

Fed independence

Potential downsides, at least from Trump's view, might be that Rieder has stated he'd like to see the Fed's key interest rate around 3%, only about half a percentage point below its current level and above desired by the president and other White House officials. He has also expressed support for Fed independence and seems unlikely to take marching orders from Trump.

In a separate appearance at the World Economic Forum — held each year in Davos, Switzerland, where BlackRock plays a huge role — Trump mused about the difficulty in finding a Fed chair who would do his bidding. Few if any presidents in U.S. history have been so open about trying to influence monetary policy.

“They get the job, they're locked in for six years. They get the job and all of a sudden, 'let's raise rates a little bit,'” Trump said, misstating the length of the four-year terms for chairs. “It's amazing how people change once they have the job. It's too bad. It's sort of disloyalty. But they've got to do what they think is right.”

While Trump may again become dissatisfied with the next Fed chair, markets likely will welcome whomever Trump chooses, including Rieder, at least among those considered in the running.

“The BlackRock fixed income CIO, who has not worked in a policy position before, would bring a perspective grounded in deep granular bottoms-up analysis of corporate data rather than economic theory and models,” wrote Krishna Guha, head of global policy and central bank strategy at Evercore ISI. “The market would likely welcome Rieder as one of its own.”