Federal Reserve "Helmsman" Uncertainty Rises Again: The "Double Kevin" Battle Between Doves and Reformers, Who Will Dominate the Future?

Market Forecast Reversal: Trump’s “All Great” Comment Sparks Repricing

In just two weeks, the flow of funds on prediction markets like Polymarket has experienced a dramatic reversal. The situation in the “Next Federal Reserve Chair” betting game has long been different.

Looking back to early December, the market consensus was crystal clear—Kevin Hasset was leading with over 80% certainty, and other candidates were just supporting roles. But just two weeks later, former Fed Governor Kevin Waugh’s chances have surged to 45%, officially overtaking Hasset’s 42%, becoming the new “front-runner.”

This turnaround was triggered by a meeting last week between Trump and Waugh at the White House. Unlike previous perfunctory encounters, this time, Trump’s attitude toward Waugh changed noticeably. In an interview with The Wall Street Journal, Trump openly stated, “I think both Kevins are great,” implying Waugh is now on equal footing with Hasset as a top contender for Fed Chair.

From “Hasset in the lead” to “battle of the two Kevins,” this personnel shift hints at a fundamental reassessment of the dollar’s liquidity outlook over the next four years.

Wall Street Elites’ Choice: How Waugh Overtook the Dovish Candidate

Waugh’s sudden rise was neither accidental nor hasty. His ability to “turn the tables” in such a short time stems from multiple advantages stacking up.

First is his deep connection with Trump’s inner circle. Compared to Hasset, Waugh has closer personal ties to Trump—his father-in-law is Ronald Laney, heir to Estée Lauder, a billionaire who is not only a major Trump donor but also a college classmate and longtime friend of Trump. This kinship naturally positions Waugh as “one of us” in Trump’s eyes, rather than just a staffer.

Second, Waugh has garnered collective backing from Wall Street elites. According to the Financial Times, JPMorgan CEO Jamie Dimon recently expressed support for Waugh at a private high-level asset management summit, bluntly pointing out that—Hasset might push overly aggressive rate cuts to appease Trump, potentially causing inflation rebound. This judgment from top Wall Street financiers significantly boosts Waugh’s leverage.

Meanwhile, Hasset appears to be caught in a tactical dilemma. Before officially securing a nomination, he has been overly eager to demonstrate his “independence” to the market. Last week, in multiple public statements, he distanced himself from Trump to respond to bond market concerns that he might become a “dove tool.” When asked about Trump’s influence on Fed decisions, he responded, “No, his opinions won’t have any substantive impact… only when his stance is supported by reasonable data is it worth considering,” even adding, “If inflation rises from 2.5% to 4%, then rate cuts must stop.”

This textbook-style “Fed Chair speech” may soothe bond traders but could anger Trump, who is extremely eager to maintain control. Shortly after these statements, news of Trump’s meeting with Waugh began to surface.

Waugh’s Resume Code: Why He Nearly Missed the Fed Chair Position

Interestingly, Waugh’s presence at the core of Fed power is not new. During Trump’s first term, he was the person who “almost won everything but ultimately fell short.”

Few now remember that Jerome Powell, whom Trump frequently criticizes, was appointed Fed Chair by Trump himself in 2017. The ultimate showdown was between Powell and Waugh—then only 35 years old, Waugh made his debut as the youngest Fed Governor in history, and was also a key aide to Ben Bernanke during the 2008 financial crisis. Ultimately, Waugh lost to Powell, who was strongly lobbied by then-Treasury Secretary Mnuchin.

Fast forward four years, and Trump seems to be correcting this “regret.” According to The Wall Street Journal, after Trump’s re-election, he even considered appointing Waugh as Treasury Secretary.

Waugh’s consistent presence in Trump’s orbit is due to his nearly perfect background:

• Educational Foundation: Bachelor’s in Economics and Statistics from Stanford; then studied Law and Economic Regulation at Harvard Law School, supplemented with courses on Capital Markets at Harvard Business School and MIT Sloan, combining legal, financial, and regulatory expertise.

• Financial Experience: Years in Morgan Stanley’s M&A department, serving as a financial advisor for multiple industries, until leaving in 2002 with extensive Wall Street practical experience.

• Policy Background: During the George W. Bush administration, served as Special Assistant to the President for Economic Policy and as Executive Secretary of the National Economic Council, advising on capital markets, banking regulation, and insurance policies.

In other words, over the past two decades, Waugh has moved seamlessly among Morgan Stanley, the George W. Bush economic team, and the Fed’s power circles, always active among top global financial elites. He understands Wall Street’s rules of competition, and is a core member of Trump’s social circle—this dual identity is his key to overtaking the dovish candidate at critical moments.

Two Future Scenarios: Liquidity Frenzy vs. Precise Reform Surgery

Although Hasset and Waugh share a name, their visions for the future of financial markets are diametrically opposed.

Waugh’s Policy Blueprint: From “Unlimited Liquidity” to “Balance Sheet Normalization”

If Waugh ultimately takes the helm of the Fed, the market will not experience Hasset’s “big flood” of liquidity. Instead, it will face a precise surgical approach to the Fed’s quantitative easing (QE) policies and institutional mandates.

This stems from Waugh’s prominent identity over the past 15 years—“Anti-QE Advocate.” He has publicly criticized the Fed’s asset balance sheet abuse multiple times, and in 2010 resigned in protest over the second round of QE. His core logic is clear and hardline: “If we stay silent on the printing press, real interest rates can be even lower.”

This means Waugh aims to curb inflation expectations by shrinking the money supply (quantitative tightening, QT), creating room to lower nominal interest rates—an advanced “space-for-time” operation designed to end the “money-driven” era of the past 15 years.

According to Deutsche Bank’s analysis, if Waugh takes office, the Fed might implement a unique policy mix: supporting rate cuts under Trump while aggressively normalizing the balance sheet (QT). This seemingly contradictory combination reflects Waugh’s strategic depth.

Moreover, unlike Powell, who tries to fine-tune the economy through subtle adjustments, Waugh advocates for “minimized intervention.” He believes “forward guidance has limited effect in normal times,” and criticizes the Fed’s “mission drift” on climate and inclusion issues, insisting that the Fed and Treasury should each focus on their own roles—monetary policy for the Fed, fiscal responsibility for the Treasury.

Notably, despite Waugh’s sharp criticisms, he remains fundamentally a “reformer,” not a “revolutionary.” His vision for the Fed is “revitalization”—preserving its core structure but removing the policy errors accumulated over the past decade. If he leads, the Fed will return to its fundamental dual mandate—maintaining currency stability and price stability—without letting monetary policy shoulder responsibilities that belong to the Treasury.

Hasset’s Concerns: Long-term Costs of Dovish Policies

In contrast, choosing Hasset means the Fed will follow a path of “obedience to the White House.” In this scenario, the Fed is likely to become a cheerleader for the stock market—short-term tech stocks and Bitcoin may soar to new highs, but at the cost of runaway inflation and further weakening of dollar credibility.

Double Impact on Crypto and Tech Stocks

This “battle of the two Kevins” spells very different market environments for investors in various asset classes.

For crypto and tech stocks accustomed to liquidity “feeding,” Waugh’s rise is undoubtedly a challenge—he views unlimited liquidity as both poison and a chronic disease that needs systemic “cleansing.” This could lead to pain for Bitcoin, Nasdaq, and other assets as liquidity tightens in the near term.

But in the longer term, Waugh might actually be an ally. His extreme admiration for free markets, firm support for deregulation, and optimistic outlook on the US economy—believing AI and deregulation will spark productivity booms similar to the 1980s—are key factors. More importantly, Waugh is one of the few senior officials who has invested directly in crypto assets, having invested in projects like Basis and Bitwise, demonstrating his genuine understanding of the field.

From a long-term perspective, Waugh’s “de-bubbling” reforms could lay a firmer foundation for healthy financial asset growth.

Hidden Risks: “Sting” in Trade Policies

However, Waugh and Trump are not entirely aligned. The biggest risk lies in trade policy differences. Waugh is a staunch supporter of free trade and has publicly criticized Trump’s tariffs as potentially leading to “economic isolationism.” Although he recently stated, “Even with tariffs, I support rate cuts,” this divergence remains a thorn.

Balancing “maintaining dollar credibility” with “supporting Trump’s tariffs and rate cut demands” will be Waugh’s greatest challenge.

Final Words: Shift in Power Center

The essence of this “battle of the two Kevins” is a fundamental choice about the future direction of US finance.

Choosing Hasset is akin to opting for a liquidity frenzy—where the Fed becomes a subordinate to White House policies, short-term tech stocks and crypto may skyrocket, but at the expense of long-term inflation runaway and dollar devaluation.

Choosing Waugh means embarking on a “surgical” deep reform—markets may experience withdrawal symptoms from liquidity tightening in the short term, but with “deregulation” and “sound money” support, long-term investors and Wall Street bankers will feel more secure.

Regardless of who ultimately wins, one undeniable fact has emerged: in 2020, Trump could only criticize Powell via social media; by 2025, with a decisive victory and back in power, Trump will no longer be content to be a bystander.

Whether the main character on the stage is Hasset or Waugh may determine the specific trajectory of this financial drama. But the director and screenwriter of this show have already unmistakably become Trump himself.