Five days after being named by Trump, Walsh remained silent, while his competitor Hassett drew a clear red line in a television interview: the president's opinion 'does not carry weight.'

There are five months left until the current chair Jerome Powell's term ends, and a key personnel appointment that will determine the future direction of global monetary policy has already entered a heated stage.

As of mid-December, predictions from the market platform Kalshi show that former Federal Reserve Governor Kevin Walsh's probability of being nominated has surged to about 46%, while the probability of Kevin Hassett, the former chair of the White House Council of Economic Advisers who once led the race, has dropped to 39%. The turning point and catalyst for this reversal occurred within a week after December 10.

One, a week of dramatic changes.

● On December 12, U.S. President Trump made a statement that broke the balance in an interview with The Wall Street Journal. He clearly pointed out that former Federal Reserve governor Kevin Walsh is the 'number one candidate' for the next Federal Reserve chair.

● Trump also put forward his specific expectations for interest rates: hoping to lower the federal funds rate to '1% or even lower' a year later to alleviate the financing pressure on U.S. Treasury debt. He also emphasized that the next chair should consult him when formulating policy.

● Just two days later, another major candidate, Kevin Hassett, quickly responded. On December 14, he built a defense for the independence of the Federal Reserve during a television interview, clearly stating that even if he were to take office, the president's opinion would not carry weight, and decisions must be based on the consensus of the Federal Open Market Committee.

Two, the duel of the titans.

The backgrounds, philosophies, and relationships of the two 'Kevins' with the White House create a stark tension in this duel.

Three, the 'fortress' of independence and the 'undercurrents.'

Hassett's firm statement in front of the camera that 'the president's opinion does not carry weight' is not an isolated defense, but the latest response to a months-long battle for independence.

● The front line of this defense battle has long been laid out. In August of this year, Trump publicly pressured on social media to dismiss the head of the Bureau of Labor Statistics, accusing him of 'artificially inflating' employment data during the previous administration. This move was interpreted by experts as an attempt to shift the blame for economic weakness onto previous officials and reinforce control over key economic sectors.

● Meanwhile, within the Federal Reserve, the personnel battles are equally fierce. Stephen Moore, seen as more aligned with Trump's stance, was ultimately confirmed by a narrow margin in the Senate vote to join the Federal Reserve Board. Another board member, Lisa Cook, was able to temporarily remain in her position due to court intervention.

● These events together paint a picture: Trump is trying to influence the presentation of U.S. economic data and the formulation of monetary policy through personnel appointments across multiple fronts.

Four, a global crisis about 'trust.'

The shocks caused by personnel changes in the Federal Reserve extend far beyond the political circles of Washington. Their core touches the foundation of the modern global financial system: the institutional trust in the independence and credibility of major central banks.

● Chief economist Cheng Shi of ICBC International pointed out that more dangerous than the Federal Reserve's policies themselves going out of control is the market's imagination of 'its potential to go out of control.' Once this imagination takes shape, it will be factored into the pricing models of global assets, becoming a new, path-dependent 'institutional expectation risk premium.'

● The manifestation of this risk premium is specific and intense. When the market begins to doubt the Federal Reserve's ability to resist political interference, investors may demand higher compensation for holding U.S. Treasury bonds (especially long-term bonds), leading to an increase in the term premium; at the same time, capital may flow into assets like gold that are seen as 'institutionally insensitive', leading to a weakening of the dollar.

● Historical lessons are looming. In the 1970s, the Federal Reserve, due to lack of clear legal protections and autonomy, frequently suffered political interference in monetary policy, ultimately leading to stagflation and economic stagnation. Former Federal Reserve chairs Bernanke and Yellen also rarely jointly voiced their support for Powell and warned that once central bank independence is compromised, the costs will be extremely high.

Five, the economic dilemmas and political calculations behind the nominations.

Trump's relentless pressure on the Federal Reserve is backed by complex economic realities and urgent political considerations.

● On one hand, the U.S. economy is walking a narrow path. Although inflation has retreated from its highs, it has not stabilized within the 2% target.

● On the other hand, signs of weakness are appearing in the labor market, with data showing that actual job additions have been significantly revised downwards. Meanwhile, the 'big and beautiful' tax and spending plan launched by the Trump administration has brought pressure for expanding fiscal deficits, which theoretically requires loose monetary policy to stimulate the economy.

Against this backdrop, Trump's publicly set interest rate target of '1% or even lower' resembles a political banner. It aims not only to reduce government debt costs but may also be expected to inject a short-term boost into the stock market and economic sentiment to cope with the upcoming mid-term election pressure.

However, as experts analyze, if monetary policy compromises excessively to accommodate fiscal expansion, it may damage the Federal Reserve's credibility, trigger unanchored inflation expectations, and even lead to a new round of uncontrollable inflation. This constitutes the fundamental reason for the Federal Reserve to maintain its independence.

Six, the silent waiting of the global market.

● For global markets, the personnel competition taking place in Washington will directly determine the capital flows and asset prices for the coming years.

● Analysis suggests that if the future policy path of the Federal Reserve is perceived by the market as being overly influenced by political considerations, the long-accumulated 'credibility capital' will be consumed. This may weaken investors' long-term confidence in U.S. assets. Although there may be a market frenzy in the short term due to interest rate cut expectations, the depreciation of institutional trust will be profound and difficult to repair.

● Currently, the market is in a state of silent waiting. U.S. Treasury Secretary Scott Bansen expects the appointment of the new chair to be announced in early January next year. Regardless of who ultimately takes office, this new chair will face a severe test on their first day regarding how to balance the dual mission (stabilizing prices and ensuring full employment) while resisting political pressure.

Currently, both 'Kevins' are waiting for Trump's final decision. Walsh, as a named candidate, has gained a leading advantage; Hassett is attempting to win the support of those in the market and Congress concerned about political interference with his public 'declaration of independence.'

Whoever ultimately takes the helm of the Federal Reserve will stand at a historical crossroads: on one side, the president's urgent demand to lower interest rates and stimulate the economy; on the other side, the global market's deep concern over whether the Federal Reserve can defend its decision-making independence and maintain the credibility of dollar assets. The outcome of this duel will far exceed a simple personnel appointment; it concerns rules and expectations.

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