Trump says he’ll pick a new Fed chair very soon. What a ‘shadow chair’ would mean for the stock market.There are expectations the next Fed chief — no matter who it is — will lean tow

What’s the deal with U.S. President Donald Trump’s efforts to roll out a successor for Federal Reserve chief Jerome Powell?

Announcing a nominee for Fed chair in June or July — when current chief Jerome Powell’s term runs until May 15, 2026 — would be another instance of Trump breaking with recent precedent.

Moreover, the president’s remarks from a week ago have brought back memories of his Treasury secretary’s proposal last fall for selecting the next head of the U.S. central bank more than a year before the end of Powell’s term. Scott Bessent, the Treasury boss, eventually walked back his “shadow Fed chair” plan, which has been viewed as a way to sideline Powell, but it’s again on the minds of many analysts and investors.

Some of them say it’s unlikely that Trump actually will do a summertime announcement of his Fed pick. If the president does do it, there are expectations that this move in the short term will send stockslower. In the long term, however, it’s viewed as potentially negative for U.S. assets.

Rolling out the Fed pick this summer could “create the perception that President Trump is trying to kind of hurry Chairman Powell’s exit,” said Michael Strain, director of economic policy studies at the American Enterprise Institute, a conservative think tank. In addition, if Trump’s pick were to opine a lot, “that could affect market expectations, and that could affect inflation expectations,” he told MarketWatch.

Strain also said he said he’d be surprised if Trump actually decided to have a shadow Fed chair, adding that it would make more sense to announce the nominee somewhat closer to next May, while still allowing time for the process of Senate confirmation. As shown in the table below, some recent picks have been announced three months before the starts of their terms, while others were rolled out four or five months in advance.

In addition, Strain said Trump’s approach with the Fed in his current term, such as his talk in April about firing Powell, hasn’t been good for the U.S. economy, as it’s likely helped keep interest rates elevated — and it also hasn’t been in Trump’s interests. ”Whoever President Trump nominates needs to really work hard to establish his independence and to convince markets that he’s going to be independent of the president,” Strain said. “It’s going to be hard, and I think the person’s public statements and testimony and all sorts of things like that are going to be very important and very, very closely scrutinized.”

Recent rollouts of Fed picks

Other analysts have made similar points as Strain.

“A good case could be made for nominating the next Fed chair a few months before the handover in May 2026. But nominating the next Fed chair now, with the expectation that this person would be an active alternative voice on monetary policy for the best part of year would confuse the market, making it harder for the Fed to shape rate expectations and potentially impacting risk premia and inflation expectations in ways that would not help advance rate cuts,” said a team of Evercore ISI analysts led by Krishna Guha, in a note. Guha is a former top Fed staffer and now Evercore’s head of central-bank strategy.

‘Serious consequences for foundational assets’

The Sevens Report’s Essaye said a “shadow Fed chair” approach could have a positive outcome for U.S. investors initially, if markets view the incoming chair as independent but also more inclined to cut rates than Powell. “That’s the best case and it should lower rates and send stocks higher, led by cyclical sectors like small caps

,” he wrote. But he also warned about the potential for negative outcomes.

“Perceived Fed independence is a critical pillar of American economic exceptionalism and if Trump’s shadow Fed chair is seen as being an instrument of the administration, then that could seriously undermine the inflation-fighting reputation of the Fed and further reduce the appeal of U.S. assets globally,” Essaye said.

Trump’s latest comments about picking a new Fed chair have come as he keeps putting pressure on Powell’s Fed to lower interest rates. The president called for an interest-rate cut of a full percentage point on Wednesday following an inflation reading and made that same call last week after the latest jobs report.

In addition, Trump said in mid-April that Powell’s “termination cannot come fast enough,” before ratcheting down his rhetoric a few days later by saying he had “no intention of firing him.” The two met privately at the White House in late May, but there was no meeting of the minds on the path of interest rates.

Not so independent, but also many bosses?

It’s possible to go too far in thinking about the Fed’s independence from politics, according to Sarah Binder, a senior fellow at the Brookings Institution and a professor of political science at George Washington University.

“We have this notion of Fed independence, and the notion that once on the Fed, the chair is quite committed to maintaining that isolation and insulation from politics. But in reality, presidents use their picks all the time — even on Fed chairs — to find someone they think will be responsive to their broader economic agenda,” said Binder, whose books include ”The Myth of Independence: How Congress Governs the Federal Reserve.”

“Trump’s unusual in trying to dictate great changes, but presidents typically do like more dovish Fed chairs,” she added. Another point to keep in mind, according to Binder, is that presidents sometimes don’t get what they want or what they expected with their Fed picks. She pointed to former President George H.W. Bush’s well-known remark that pinned his loss in the 1992 White House race on the Fed chief of that era, Alan Greenspan, who was reluctant to cut rates. Bush said in 1998: “I reappointed him, and he disappointed me.”

In addition, Binder pushed back on the idea that the next Fed chair is certain to cut rates with gusto.

“Bond markets can be pretty disciplining on the Fed and presidents, so if you had a Fed chair come in who was committed to cutting rates explicitly, regardless of the state of the economy or the state of inflation, I think you’d find an adverse market reaction pretty quickly,” she told MarketWatch. Binder said there’s a “focus on the president, and for good reason, but the Fed has a lot of audiences,” including Congress, markets, the banking industry

and other industries.

“There are a lot of people with a vested interest in what the Fed does, and so the Fed chair has more than one boss,” she said.