In the U.S. prediction market, former Federal Reserve Governor Kevin Warsh's support surged from single digits to nearly 50% within a week. The ultimate suspense regarding the direction of global liquidity for next year is being crammed into this shortened trading week of Christmas.
Just as the market was preparing to enter the Christmas holiday rhythm, the 'script' for the next chair of the Federal Reserve was completely rewritten. Previously a sure bet, White House economic advisor Kevin Hassett's attempt to showcase 'independence' turned the situation upside down.
At this moment, everyone's attention is focused on the two 'Kevins'—Hassett and former Federal Reserve Governor Kevin Warsh. Their competition is essentially two starkly opposing bets on the liquidity of the U.S. dollar over the next four years.
01 Power Game: The 'Stunning Reversal' of the Federal Reserve Chairman
Wall Street has just experienced a cognitive disruption. Just at the beginning of December, Hassett had an overwhelming win rate of over 80% in the prediction market, viewed as the 'quasi-chairman'. However, a meeting at the White House changed everything.
Trump met with Walsh last week and publicly praised both Kevins as 'great', putting Walsh in the lead. Subsequently, Hassett made several public statements attempting to distance himself from Trump, emphasizing that 'the president's opinions carry no weight', which is believed to have possibly angered Trump, who craves control.
The market is highly sensitive. On the prediction platform Polymarket, funds quickly re-priced. As of December 17, the situation has reversed from Walsh leading to Hassett leading again with a 53% win rate, while Walsh stands at 27%. This drastic volatility itself indicates that the final candidate remains highly uncertain.
02 Why is the market so tense? The two worlds of the two 'Kevins'
The market is tense because the two candidates represent two completely different monetary policy paths.
If Hassett takes office, the market generally expects a 'dovish' frenzy. He is seen as more likely to heed Trump's calls for interest rate cuts, injecting liquidity into the market, which may stimulate risk assets in the short term.
If Walsh takes the helm, the script will be completely different. He is a long-time sharp critic of the Federal Reserve's quantitative easing (QE) policy, advocating for aggressive asset balance sheet reduction (QT) to combat inflation and create space for interest rate cuts. This means that the market may face a 'withdrawal reaction' from tightening liquidity, which will be a huge test in the short term for the U.S. stock market and cryptocurrencies accustomed to loose monetary policy.
03 The Bigger Dilemma: The Federal Reserve's 'Lonely Path of Interest Rate Cuts'
This personnel game is taking place at a delicate global macro turning point. The Federal Reserve finds itself on an increasingly 'lonely' path.
By 2025, the Federal Reserve has cumulatively cut interest rates by 75 basis points. However, the pace of other major developed economy central banks is not consistent: the European Central Bank has paused interest rate cuts and entered an observation period; the Bank of Japan has just raised interest rates, pushing for the normalization of monetary policy; the market expects that by the end of 2026, most major central banks may turn to interest rate hikes, while the Federal Reserve and the Bank of England are the only two central banks that may continue to cut interest rates.
This rare global divergence in monetary policy will reshape the logic of capital flows. If the Federal Reserve walks alone on the path of interest rate cuts, the attractiveness of dollar assets may weaken relatively, bringing huge risks of exchange rate and market volatility.
04 Christmas Week Data: The Last Piece of the Puzzle
In this context filled with uncertainty, a series of economic data released before the Christmas holiday will become the key final piece in judging the future policy path.
On Tuesday, the U.S. will announce the final value of the third-quarter actual GDP, personal consumption expenditures (PCE), and core PCE price index. Previous data showed the U.S. economy exhibiting resilience, with a third-quarter GDP annualized growth rate of 5.2%, but core PCE inflation was revised down. Any unexpected revision of data may affect the market's judgment on the stubbornness of inflation and the urgency for interest rate cuts.
Meanwhile, Bank of Japan Governor Ueda Kazuo will deliver a speech on Thursday. In the context of Japan just raising interest rates, and being expected by JPMorgan to continue raising rates twice next year, each of his words will be carefully analyzed by global arbitrage traders to assess the speed at which the 'cheap yen era' ends.
05 Finding 'Certainty Anchors' Amid Uncertainty
When the world's most important central bank is uncertain about its future and the monetary policies of various countries diverge, the core dilemma facing investors is: How to protect the stability of assets in a system dominated by decisions made by 'people' and the games of 'nations'?
This desire for stability and certainty is drawing more and more attention to solutions within the crypto world—decentralized stablecoins (Decentralized USD). They attempt to answer a fundamental question: Can a stable value storage be established that does not rely on any specific central bank decision-maker and is not affected by the monetary policy cycles of any single country?
Taking USDD as an example, its concept of #USDD aiming for stability is achieved through over-collateralization and on-chain transparency mechanisms, transforming trust from 'trust in people' to 'trust in mathematical rules and verifiable assets'. When the candidate for Federal Reserve Chairman swings and causes confusion in market expectations, the value of USDD is anchored to publicly verifiable on-chain reserves, with its stability stemming from pre-set smart contracts, rather than debates in Washington conference rooms.
More importantly, protocols like USDD are evolving into 'yield-bearing assets', generating returns through DeFi strategies while maintaining stability. This means that regardless of whether the news during Christmas week is positive or negative, and regardless of who wins at the Federal Reserve next week, the assets allocated here continue to operate in a parallel, rules-based system, providing a possibility to navigate through traditional macro cycles.
The Christmas bells are about to ring, trading time is shortened, but market anxiety has not diminished.
The 'two Kevins' in Trump's hands, one may mean the continuation of a liquidity feast, while the other may signify the beginning of a tightening operation. Behind them is also the prologue to a rare global divergence in monetary policy.
In this season filled with uncertainty, seeking stability is no longer a conservative choice but a profound wisdom. When centralized decision-making in the traditional world brings heavy fog, the certainty built in code and mathematics may become the most precious 'Christmas gift' of this era.
After the holiday, regardless of who takes over the Federal Reserve, the market will eventually realize that true resilience comes not only from predicting the wind direction but also from building an ark that can maintain stable navigation regardless of the storm.