Trump's pressure on the Federal Reserve is "counterproductive," hawkish candidate Walsh overtakes Hassett in winning chances

After the U.S. Department of Justice launched an investigation into Federal Reserve Chairman Powell, the situation began to change in a direction contrary to Trump's expectations. The probability of Powell remaining in his position until 2028 after his term ends in May has started to rise, while the chances of the more hawkish candidate for the next chairman, Warsh, have begun to surpass those of Hassett. Trump may find himself in a year-long game with the Federal Reserve.

Polymarket data shows that shortly after Powell released a video responding to the investigation 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 stepping down by the end of the year has decreased from 85% to 62%.

The prediction market has also adjusted its expectations for Trump's ally Kevin Hassett being nominated to succeed Powell as Federal Reserve chairman. Before and after the news of the U.S. Department of Justice investigation broke, the more hawkish candidate Kevin Warsh began to gain support over Hassett in Polymarket.

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 ends in May, Trump would not challenge the Federal Reserve's multi-billion dollar renovation project. Trump had previously harshly criticized the renovation plan, but his criticism of the Federal Reserve has diminished in the second half of last year. This bottom line was broken last Sunday, making it more likely for Powell to remain at the Federal Reserve as an ordinary board member. By continuously attacking Powell personally, it is likely to end up being a futile effort.