The US dollar and US bonds are starting! How will Waller's appointment as Federal Reserve Chair affect the market

On Friday (the 30th), U.S. President Trump announced his choice for the new Federal Reserve Chair—Kevin Woor. This long-time critic of the Fed will have the opportunity to put his “system reform” ideas into practice. Meanwhile, the White House is currently trying to strengthen control over interest rate setting.

Overnight, U.S. stocks fluctuated downward, the dollar exchange rate and bond yields strengthened accordingly, and gold prices plummeted. Market expectations are that Woor will support rate cuts, but not as aggressively as other potential nominees might adopt a loose monetary policy. First, he has a history of working at the Fed; second, Wall Street generally believes he will not blindly follow Trump.

Divided Federal Reserve

If approved by Congress, Woor will face a highly divided Federal Reserve. This year, the U.S. economy is expected to continue strong growth, while inflation remains above the Fed’s 2% target. These two factors are key reasons opposing further rate cuts.

Low interest rates tend to benefit stocks and other assets. The “wealth effect” from rising asset prices has indeed boosted consumer spending and supported economic growth, but for many ordinary American families, high living costs remain their top concern. The December core wholesale price index PPI released on Friday surged 0.4% month-on-month, with a year-on-year increase stable at 3.5%, the highest in nearly a year. Wholesale prices represent the costs businesses pay for raw materials or for selling products directly to consumers, and their changes usually influence overall inflation.

Meanwhile, due to the implementation of import tariffs and increased investment in artificial intelligence, companies are becoming cautious in hiring. On the other hand, cooling labor markets are related to Trump’s aggressive trade and immigration policies. These policies both suppress labor demand and reduce labor supply. Some economists point out that labor shortages are why unemployment has not risen significantly. The U.S. needs to add 50,000 to 120,000 jobs per month to keep pace with the growth of the working-age population. Given that tariffs and AI development have suppressed corporate hiring willingness, the challenges in the U.S. labor market are more structural than cyclical. This also means that rate cuts will have limited effect in stimulating employment growth.

Ryan Swift, U.S. bond strategist at BCA Research, said that based on the Fed’s published rate expectations, they seem to believe this easing cycle is nearing its end. This year, the U.S. real GDP is expected to grow strongly, inflation will continue to decline, and unemployment will remain stable or slightly decrease. If the Fed’s expectations come true, the situation will be more complicated. “There are still significant disagreements among committee members on what interest rate policy to adopt in 2026. In fact, compared to their views on economic prospects, the disagreements on interest rate policy among Fed members are more pronounced.”

How to Ensure Independence

In 2006, at the age of 35, Woor was nominated by then-President George W. Bush to the Federal Reserve Board, making him the youngest nominee in Fed history. During the 2008 global financial crisis, he was part of the core decision-making circle alongside Fed Chair Ben Bernanke.

Eventually, Woor parted ways with Bernanke and resigned from the Board in 2011. He agreed with Republican criticisms of the Fed: Bernanke’s unprecedented bond-buying programs (quantitative easing) to lower long-term interest rates gave the Fed too much dominance over financial markets. Since then, Woor has consistently criticized the size of the Fed’s balance sheet.

Now, he faces two major challenges: first, Trump’s firm push for rate cuts; second, investor concerns over the Fed’s independence. As the dollar appreciates, early signs indicate that investors are confident Woor will not succumb to White House pressure to drastically cut rates.

For a long time, the Fed has been viewed as a stabilizing force in global financial markets, largely due to its recognized political independence. Trump has been continuously testing this independence, including the Department of Justice’s decision this month to investigate Powell criminally. This move has created significant obstacles for any successor’s Senate confirmation process.

With Trump’s nomination announced, doubts have emerged within Congress. Republican Senator Tom Tillis said he would not support any Fed chair nominee from Trump while the investigation remains unresolved. Democratic Senator Elizabeth Warren expressed concern over Trump’s decision to nominate Woor. She questioned whether Woor could lead the Fed without White House influence. “Trump has stated that anyone who disagrees with him cannot become Fed Chair,” she urged Republicans to delay Woor’s nomination until the Justice Department concludes its investigation into current Chair Powell.

Market Impact

Based on recent statements, Woor’s core policy stance is “rate cuts + balance sheet reduction”: controlling inflation and reducing bank reserve requirements through shrinking the balance sheet (QT) to create room for rate cuts.

These policies are expected to boost the dollar and U.S. bond yields, while cooling rate cut expectations, weakening the safe-haven and inflation-hedging properties of precious metals. On Friday, the dollar index rebounded 0.8%, regaining the 97 level. Balance sheet reduction increases long-term supply pressure, while cooling rate cut expectations lift short-term yields. Gold and silver experienced panic selling, with platinum and palladium falling into a bear market.

U.S. stock sectors showed divergence: heavyweight growth stocks (AI/tech) came under pressure, while financial stocks benefited from rising interest rates. In the short term, high-valuation sectors may face valuation compression, with financials and cyclical stocks relatively outperforming.

First Financial journalist noted that the futures pricing of the federal funds rate still indicates the market expects the Fed to cut rates for the first time in the second half of this year, not in June after Powell’s departure. Wall Street generally believes that, as Trump’s appointee, Woor’s push for rate cuts in 2026 is a given, but whether he can persuade his new Fed colleagues to support loose monetary policy remains uncertain.

Future changes in monetary policy expectations will continue to disturb asset prices. Currently, all asset classes including stocks, commodities, and cryptocurrencies are highly volatile. The core reason for the stock market’s fluctuations is the earnings reports of some tech giants. Concerns about increased costs in AI investments and doubts about whether large corporate investments in AI can translate into revenue growth have intensified. Market volatility has also spread to other sectors. Due to new U.S. sanctions threats against Iran, international oil prices have risen to a six-month high, while metal prices have plunged after historic gains.

Ryan Detrick, Chief Market Strategist at Carson Group, said: “Amid geopolitical turmoil, central banks and individual investors worldwide are increasing holdings of gold as a safe haven, while silver and copper play key roles in industrialization and AI races. Since the beginning of this year, these two factors have dominated the market, making it harder for investors to diversify risk effectively during volatility.” Looking ahead, government shutdowns, Trump’s tariff policies, and geopolitical factors will continue to be key influences on the economy and markets.

(Source: First Financial)