How will the selection of the new Federal Reserve Chairman affect future market pricing?

CMSC released a research report stating that on January 28, 2026, local time, the Federal Reserve held a monetary policy meeting and announced a pause in interest rate cuts. The uncertainty increased again, particularly after Waller voted in favor of a rate cut in this meeting. Based on the latest probabilities predicted by Polymaret for the new Federal Reserve Chairman, the probabilities of Riedel, Wash, Waller, and Hassett being elected are 36%, 27%, 17%, and 7% respectively, with the gap narrowing compared to before. Based on the candidates' latest policy stances, from dove to hawk, it should be Hassett, Riedel, Waller, and Wash. Riedel belongs to the market-oriented faction, and if elected, the market is expected to cut rates earlier and support more asset purchases, making him the most friendly towards long-term US bonds among the four. In the short term, good for US stocks, bad for the US dollar, although risk assets may experience volatility, the Fed Put continues to exist. Wash is the most hawkish, focusing more on discipline and the independence of the Federal Reserve, supporting balance sheet reduction. In the short term, bad for US bonds, good for the US dollar, US stocks fluctuate. In the medium term, there may be a deviation from Trump's ideology, leading to increased political pressure similar to last year, causing volatility in risk assets. Waller is neutral-leaning dovish, between Riedel and Wash. In the short term, the market expects moderate rate cuts or a maintenance of a loose window, with slight increases in US stocks and bonds, and a slight decrease in the US dollar. In the medium term, friendly towards risk assets. Hassett is the most dovish, and if elected, the market expects aggressive rate cuts in the short term, with short-term short-term or rapid declines, but the long term may see an increase due to reflexive upward movement, causing steepening in the US bond curve, a devaluation of the US dollar, and an increase in US stocks. In the medium term, concerns about the independence of the Federal Reserve may increase, leading to significant fluctuations in risk assets. The main points of CMSC are as follows: The Federal Reserve held steady. The Federal Reserve paused interest rate cuts as scheduled. Compared to December, the FOMC statement expressed optimism about the economy, removing the wording about "increased downside risks to employment in recent months" and pointing out that "the unemployment rate shows some signs of stability." The language describing the pace of economic expansion changed from "moderate" to "steady," in line with the decision to pause rate cuts this time. Milan and Waller voted against, supporting a 25BP rate cut. Powell's speech and Q&A: Tends to be hawkish, optimistic about the economy, emphasizing that upward inflation risks and downward employment risks are diminishing. 1) Economy: Improved since the last meeting. Speech: Economic activity has been expanding steadily, with consumer spending remaining resilient and business fixed investment continuing to expand. Real estate remains weak. The government shutdown may have put pressure on economic activity in the last quarter, but reopening the government should boost growth in this quarter, reversing these effects. Q&A: Incoming data since the last meeting shows clear growth prospects, with all data indicating a strong start to growth this year. Overall, economic forecasts are indeed stronger. 2) Employment: Downside risks to employment are diminishing. Speech: Labor market indicators may be stabilizing after a period of weakness. Over the past few months, nonfarm employment has averaged a monthly decrease of 22,000, reflecting a decline in labor force growth due to reduced immigration and declining labor force participation, although labor demand has also clearly weakened. Q&A: There are signs of stabilization in the employment data. Economic prospects have improved since the last meeting, which should have an impact on labor demand and employment in the future. 3) Inflation: Tariff inflation transmission is nearing completion. Speech: Inflation is still somewhat above our 2% long-term target. Commodity inflation has rebounded, while service sector inflation continues to decline. Q&A: Most of the overshoot in commodity prices comes from tariffs, and the impact of tariffs has largely been transmitted. We do believe that the impact of tariffs may soon end, becoming a one-time price increase. All service categories continue to decline in inflation, which is a healthy trend. Assuming there are no major new tariff increases, the downward trend in inflation is relatively clear. If we observe this, it will tell us that we can relax our policies. 4) Interest rate path: The policy rate is in a favorable position. Speech: Since September last year, we have cut the policy rate by 75BP, bringing it back to neutrality. This normalization process should help stabilize the labor market and allow inflation to return to its downward trend towards 2% once the effects of tariffs fade. We are in a favorable position to determine the magnitude and timing of the policy rate based on incoming data, changing outlooks, and risk balances. Q&A: Both upward inflation risks and downward employment risks may have diminished. We have not made any decisions about future meetings yet, but the economy is growing steadily, the unemployment rate is stable, and inflation is still slightly high, so we will focus on the target variables and let the data guide us. It is difficult to say from the existing data that our policy now has significant constraints; it may be neutral to slightly loose or slightly restrictive. Current rate hikes are not anyone's base scenario. The threshold for the next rate cut has been raised. In the review of the December 11 Federal Reserve meeting, Powell mentioned several times the "degree and timing of additional adjustments," and mentioned that commodity inflation will continue to rise in Q1, suggesting a high probability of a pause in rate cuts in Q1. From today's statements, it is clear that the threshold for the next rate cut has indeed increased. On one hand, Powell emphasized that the risks of upward inflation and downward employment are diminishing, and expressed that the improved economic outlook exceeds expectations, which is a hawkish signal in itself. On the other hand, when mentioning the conditions for further rate cuts, Powell pointed out that a clear downward trend in inflation or substantial weakness in employment would be needed. Market reactions: Gold rose significantly, US stocks rose slightly, and US bonds fell slightly. The three major US stock indices, S&P 500, Nasdaq, and Dow Jones changed by -0.01%, 0.17%, and 0.02% respectively. The 2-year US bond yield rose by 3BP to 3.56%, and the 10-year US bond yield rose by 2BP to 4.26%; the US dollar index rose by 0.82% to 96.54; COMEX gold rose by 8.17%, LME copper rose by 0.74%, and Brent crude oil rose by 1.61%. Risk warning: US economic fundamentals and policies could exceed expectations.