"Dark horse" Riedel becomes the top candidate for Federal Reserve Chair as interest rate traders increase bets on rate cuts.

Cailian Press, January 28 (Editor: Xiaoxiang) As expectations grow that Rick Rieder, BlackRock's Chief Investment Officer, may succeed Powell, some traders in futures and options markets are increasing their bets that the Federal Reserve will shift to a dovish policy.

The data shows that since last Friday, as Rieder, who previously had almost no chance, has emerged as the top candidate for the next Fed chair in prediction markets, significant inflows of capital have entered interest rate futures markets linked to the Secured Overnight Financing Rate (SOFR) and the Fed’s benchmark policy rate—the federal funds rate.

Data on open interest in federal funds futures and SOFR futures released on Monday showed growing market interest in new trades that could benefit from a more aggressive rate-cutting path than currently priced in. Notable flows included record trading volumes in the one-month July-August federal funds futures spread and the six-month June-December SOFR spread.

Cailian News reported last weekendthat according to sources familiar with White House decision-making, Rick Rieder, an executive at Blackrock, is gaining more leverage for the top Fed position due to his Wall Street credentials and openness to reforming the Federal Reserve. Sources indicated that this Blackrock executive not only embodies the image of a central bank governor but has also drawn President Trump’s attention with several proposed reforms for the Federal Reserve.According to sources familiar with White House decision-making, Rick Riedel, an executive at BlackRock, is strengthening his chances of obtaining the top position at the Federal Reserve due to his experience on Wall Street and his open stance on Federal Reserve reforms. Insiders reveal that this BlackRock executive not only possesses the demeanor of a central bank governor but also has proposed numerous Federal Reserve reform ideas that have caught the attention of President Trump.

These individuals, who requested anonymity to discuss internal deliberations, noted that another advantage Rieder holds is that he has never served at the Federal Reserve—unlike several other final candidates—and is thus perceived as unencumbered by institutional ties.

As a Wall Street veteran, Rieder is seen as someone who would bring a market-focused decision-making approach to the Federal Reserve. In terms of monetary policy, he advocated in September last year for a more aggressive 50-basis-point interest rate cut compared to the Fed’s preferred 25-basis-point move, while opposing the Fed's practice of providing forward guidance on future interest rate paths through its “dot plot.”

Earlier this month, Rieder stated that the Fed’s benchmark interest rate should be lowered from its current range of 3.5%-3.75% to 3%. This implies that the number of rate cuts this year would exceed the single cut projected in the Fed’s dot plot released in December last year.

Krishna Guha and other economists at Evercore ISI wrote earlier this week, 'Rieder is expected to adopt a dovish interest rate stance and may push for three rate cuts this year,' based on Rieder’s insights into productivity, inflation dynamics, and labor market pressures.

Notably, in the interest rate swaps market, the industry’s current expectation for the magnitude of the Fed’s rate cuts by 2026 remains slightly below 50 basis points (two 25-basis-point cuts). However, the SOFR options market has recently seen a surge in positions poised to benefit from multiple rate cuts, with extreme targets pointing to a federal funds rate reduction to 1.5% by the end of the year—far below the approximately 3.2% pricing reflected in current interest rate swaps.

Such contract transactions are mostly conducted anonymously, making it difficult to trace the specific participating institutions and beneficiaries of the bets.

Many investors believe that Rieder is more dovish than the previously hottest candidate for chairman, former Federal Reserve Governor Kevin Warsh.

According to data from the predictive market platform Polymarket, Warsh currently has only a 28% chance of winning the position of Federal Reserve Chairman. After Rieder met with Trump earlier this month and received a positive response, the probability of him being nominated as the next Federal Reserve Chairman has risen to about 47%.

Mohit Kumar, Chief Strategist for Europe at Jefferies, stated, 'Rieder may be slightly more dovish than other candidates, although he is unlikely to fully adopt Trump's views. His appointment could bring credibility to the role of Federal Reserve Chairman and alleviate some market concerns.'

Editor/Liam