🥛 A new Fed Chair favorite emerges? 🇺🇸

GM. This is Milk Road Macro, the newsletter that’s watching the Fed Chair race like it’s the final round of The Bachelor: Central Bank Edition.

Here’s what we got for you today:

✍️ Everything you need to know about the Fed Chair race
🎙️ The Milk Road Macro Show: Is This Macro Environment Breaking Crypto or Forcing It to Grow Up? w/ Bart Smith
🍪 Nasdaq seeks approval to extend weekday trading to 23 hours

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EVERYTHING YOU NEED TO KNOW ABOUT THE FED CHAIR RACE AND WHY IT MATTERS

The race to become the next Federal Reserve Chair in May 2026 has been turned on its head.

Previously, everybody was pretty sure that it was “ultra-dove” Kevin Hassett who would be Donald Trump’s pick.

This led to the narrative that the next Fed Chair would be adamant to slash interest rates in 2026.

But now, things have changed - and fast.

A new favorite has emerged from the shadows: Kevin Warsh.

So what’s going on?

Who is Kevin Warsh?

And why is he now the frontrunner?

Let’s take a look…

So, what’s going on?

Earlier in December - it seemed like there was only one name in the running for Fed Chair: Kevin Hassett.

Hassett is a big “Trump ally”, and many people are predicting he will be a particularly dovish Fed Chair - pushing for more rate cuts under the President’s instruction, regardless of inflation levels.

This has led to him being labeled as a “Trump stooge”.

But then on Friday last week, reports started to emerge that another contender was gaining ground: Kevin Warsh.

Trump told reporters that Warsh had moved to the top of the candidate list.

And since then, odds of Warsh becoming the next Fed Chair have soared on betting markets.

Warsh is now the favorite at 48%, according to speculators on Polymarket, with Hassett sliding to 41%.

Source: Polymarket

So, now we have the battle of the two Kevins - will it be Hassett, or Warsh?

On Friday, Donald Trump said:

"I think you have Kevin and Kevin. They’re both - I think the two Kevins are great.”

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EVERYTHING YOU NEED TO KNOW ABOUT THE FED CHAIR RACE AND WHY IT MATTERS (P2)

So, who is Kevin Warsh?

Kevin Warsh, 55, is an experienced central banker and served on the Federal Reserve Board of Governors between 2006 and 2011.

He became the youngest ever Fed Governor (aged 35) in 2006.

But he also has “market experience”, so he’s not just a life-long central banker/academic.

He has been an executive at Morgan Stanley and has also worked as a partner with legendary investor Stanley Druckenmiller.

Source: Bloomberg

Warsh is generally considered relatively hawkish on interest rates, which would seem at odds with what Trump wants from a Fed Chair (someone who will attempt to lower rates quickly).

But actually, this isn’t entirely true.

In the past, Warsh has been known as a prominent hawk, and was (incorrectly) concerned about inflationary pressures as the Fed slashed rates during the 2008 Great Financial Crisis.

But recently, he has changed his tune.

He now believes that AI is a significant deflationary force, potentially allowing for lower interest rates.

On the balance sheet - Warsh was a supporter of Quantitative Easing during his time at the Fed during the 2008 crisis.

But he has since forcefully spoken out against Quantitative Easing, essentially comparing it to “a Ponzi scheme”.

So, the simple rundown of Warsh from a policy standpoint is: former interest rate hawk turned cautious dove, former QE supporter turned QE skeptic.

Overall, I think Warsh might be less likely to attempt to please Trump, compared to Hassett.

He’d probably be less likely to attempt to slash interest rates just because the President told him to.

Nevertheless, on Friday, Trump said:

“He [Warsh] thinks you have to lower interest rates. And so does everybody else that I’ve talked to.”

Trump also said he thought the next Fed Chair should consult with him on where to set interest rates:

“Typically, that’s not done anymore. It used to be done routinely. It should be done. It doesn’t mean - I don’t think he should do exactly what we say. But certainly we’re - I’m a smart voice and should be listened to.”

Asked where he wants interest rates to be a year from now, Trump said:

“1% and maybe lower than that. We should have the lowest rate in the world.”

So, why have odds changed so dramatically?

Behind closed doors, there’s been a big pushback against Hassett from Wall Street big dogs.

According to reports earlier in December, big money managers told Trump that Hassett “lacks credibility” and will create “a disorganized mess” at the Federal Reserve by “agitating for indiscriminate rate cuts”.

Wall Street thinks Hassett would push for more unwarranted rate cuts despite inflation potentially remaining elevated, and this would cause the bond market to revolt and long-term Treasury yields to rise, as Hassett would be seen as “too close” to Trump.

And now, a new report from CNBC states that “high-level people who have the ear of the President” have cautioned against naming Hassett as Fed Chair.

Reports also indicate that JP Morgan CEO Jamie Dimon made some comments that signalled he favors Warsh over Hassett.

If we look at the 10-year Treasury yield in recent weeks, we see that Hassett becoming Fed Chair favorite coincided with a rise in yields.

And then yields have eased off slightly as Warsh has emerged as a frontrunner.

Source: TradingView

Wrapping up

Earlier in December, it seemed like Trump had basically decided on appointing Hassett.

The President explicitly stated: “I know who I’m going to pick”.

But it looks like this decision has been met with considerable pushback by Wall Street.

There are concerns that the Treasury market could “freak-out” if ultra-dove Hassett is named as Fed Chair.

And now, Warsh has been elevated as a serious contender - and he could be considered “less dovish” relative to Hassett.

Trump wants lower interest rates - this hasn’t changed.

But now, it appears that the President might be listening to big market players - and might be much more hesitant to name an outright “puppet” as Fed Chair.

It’s not entirely clear whether elevating Warsh is a short-term attempt to soothe worries about Hassett - and Hassett will ultimately still be picked anyway.

Or whether Trump might genuinely be considering a slightly less dovish pick.

Either way, the race for Fed Chair has now become a lot more open than it was previously.

That’s it for this edition - catch you in the next one.

IS CRYPTO READY TO GROW UP? 🚀

In today’s episode, we sat down with Bart Smith, ex-Head of Digital Asset Strategy at Susquehanna and CEO of Avalanche Treasury Co., to talk about crypto’s macro setup, institutional adoption, and what’s coming in 2026.

Here’s what you’ll hear:

Why Bart calls 2026 the “prove it” year for crypto
The Bitcoin playbook: digital gold, cycles, and when institutions plan to buy
What’s holding altcoins back, and how Avalanche is positioning for enterprise
How macro policy, regulation, and tech competition will shape the next wave

Don’t sleep on this one 👇

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BITE-SIZED COOKIES FOR THE ROAD 🍪

We’re still catching up on U.S. economic data that had been postponed due to the Government shutdown. Today will see a big jobs report including some October data, alongside a full November report.

Wall Street is bullish on Microsoft, with analysts believing the tech company could add trillions to its market cap over the next decade. Microsoft co-founder Bill Gates said the company is “a clear competitor” in the AI race.

Nasdaq is looking for regulatory approval to extend trading hours to 23 hours during the work week. “This evolution reflects a simple reality: global investors expect access on their terms, in their time zones, without compromising trust or market integrity”, Chuck Mack, senior vice president of North American markets at Nasdaq, said.