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Fed Chairs and Market Returns
10/2/2025
How have markets historically reacted to new Fed chairs?
Jason Chen
Senior Portfolio Strategist
Stephen Cianci
IN THE NUTSHELL
- With the impending appointment of a new Fed chair in 2026, markets have begun to speculate on the implications of President Trump’s choice on interest rates and on financial markets more broadly.
- Looking back over modern Fed history, we do not observe strong evidence of a bias lower in rates and other financial markets prior to and following the appointment of new Fed chairs. However, short-term interest rates tended to move higher both before and after the new Fed chair took office.
- Historically, there is precedent for political influence over the Fed. Prior to the legal establishment of Fed independence in 1951, the Fed was often used as a tool to provide greater financial flexibility to the US Treasury, which sometimes contributed to inflation, especially when monetary policy remained accommodative for a prolonged period.
- Even following the establishment of Fed independence, there have also been high-profile incidences where the Fed exhibited overt political bias, with the mostly widely documented case having contributed to US stagflation (high inflation, slow growth) in the 1970s.
As we approach the end of Fed Chair Jerome Powell’s tenure, markets have ramped up speculation as to who the next Fed Chair will be and how the nominee might impact the outlook for interest rates going forward. While it appears likely that the Republican-controlled Senate will approve whomever President Trump nominates for the position—which could mean a more dovish, accommodative (who supports keeping interest rates low to help boost the economy) appointee in 2026, the extent of this dovish bias may vary between the potential candidates.
Looking back at 2018, Chair Powell, a Trump nominee, was originally perceived as a dovish, market-friendly Fed Chair with a professional background not as an economist or academic but as private sector financier (first as a lawyer, then as an investment banker). To the behest of President Trump after his return to the White House, Powell instead has preserved the Fed’s independence from political influence, opting to keep monetary conditions tighter than the president has vocalized, exercising constraint in lowering interest rates too early as inflation has remained above the Fed target level.
Looking back at Federal Reserve history, particularly in recent decades as the Fed has increased its transparency and the frequency of its media communications to the public, a natural question becomes the extent to which, if at all, markets correctly or incorrectly anticipated the macroeconomic and market impact of an incoming Fed Chair. While it’s difficult to separate this anticipated Fed Chair-related influence on financial markets from the impacts of unexpected economic events and investor sentiment, we can try to address a couple important questions:
- Has there been a bias toward either monetary tightening or loosening prior to the swearing in of a new Fed Chair?
- After the new Fed Chair assumes office, have markets (particularly rates markets) exhibited momentum (a tendency to continue moving in the same direction) or have they faded the move in rates?
1 / Fed chairs in the modern era
The Federal Reserve System of the United States was established in 1913 along with the passing of the Federal Reserve Act in response to stresses on the US banking system. “The Fed”, as it is commonly referred to, was established as an independent central banking system that could monitor and promote the health and stability of the US economy through its interactions with the financial system. By conducting US monetary system policy, promoting financial system stability, supervising and regulating financial institutions, fostering payment and settlement system safety and efficiency, and promoting consumer protection and community development[1], the Fed has helped to limit financial turmoil but in a proactive and reaction way throughout its history.
As an entity, the Fed is primarily known for congressionally established dual mandate: to promote maximum employment and to promote stable prices. By setting targets to influence short-term interest rates (and more recently, by buying government and government-related bonds to help bring down the medium-to-longer term interest rates and, by extension the cost of borrowing), the Fed has helped guide the US economy toward the equilibrium of these two sometimes conflicting goals: maximum employment and stable prices.
The Fed is composed of 12 Federal Reserve Banks around the US, overseen by the Board of Governors, a committee of seven members nominated by the president of the United States and confirmed by the Senate. This board is headed by the chairman of the Board of Governors of the Federal Reserve System. Since the establishment of the Fed, there have been 16 Chairs of the Federal Reserve, each serving four-year renewable terms as Chair as well as a 14 year no-renewable term as Governor.