Trump appoints two successors! The Federal Reserve spends 40 billion to buy bonds, causing volatility in the US stock market and Bitcoin

President Trump of the United States, in an interview with The Wall Street Journal, named Kevin Hassett and Kevin Warsh as his preferred candidates to succeed current Federal Reserve Chair Jerome Powell and called for a significant reduction in interest rates. The New York Federal Reserve Bank’s trading department has begun purchasing short-term government bonds, with an initial batch of 40 billion USD maturing in about 30 days. What impact might this have on US stocks and Bitcoin?

Trump Prefers “Two Kevins” to Lead the Fed

Trump’s statements in the WSJ interview have drawn intense market attention. He explicitly indicated that Kevin Hassett and Kevin Warsh are his top choices to replace Powell and expressed hope that the next Fed chair would consult with him on monetary policy. This public stance breaks the traditional subtle boundary between the President and the Federal Reserve, showing Trump’s willingness for direct involvement in monetary policy.

Kevin Hassett, who served as chairman of Trump’s first-term White House Council of Economic Advisers, is considered a confidant of Trump. He advocates for loose monetary policy and supports low interest rates to stimulate economic growth. This position aligns closely with Trump’s call for “substantially lowering interest rates.” In contrast, Kevin Warsh, a former Fed governor, experienced the financial crisis during his tenure from 2006 to 2011 and is regarded as emphasizing institutional independence and policy prudence.

Market reactions to these two candidates vary. Appointing Hassett could imply that the Fed’s policy might tilt toward aligning with the White House’s intentions, potentially benefiting risk assets like stocks and Bitcoin in the short term. However, in the long term, weakening the Fed’s independence could raise concerns about runaway inflation and damage to dollar credibility. Warsh’s appointment might maintain policy continuity but could also entail potential disagreements with the White House.

The timing of Trump’s call for a substantial interest rate cut is noteworthy. Last week, the Fed announced a 25 basis point rate cut amid a rare dissenting vote, hinting at a possible pause in easing amid stubborn inflation and uncertain labor market prospects. Two dissenting officials argued that current inflation remains high and does not support further easing. Against this backdrop, Trump’s stance may intensify market confusion about the Fed’s policy direction.

400 Billion Bond Purchase Plan: Technical Operation or Signal of Easing?

The trading department of the New York Fed has begun buying short-term government bonds, with an initial batch of 40 billion USD maturing in about 30 days. As part of reserve management, this operation has sparked heated market discussion. Some link it to bullish prospects for Bitcoin and stocks, despite the Fed calling it a technical maintenance rather than quantitative easing.

The Fed emphasizes that this is a technical operation based on the logic that, after quantitative tightening, reserves have reached adequate levels, and recent rate cuts have further boosted market optimism. However, market participants interpret this differently. Optimists believe that regardless of nominal terminology, a 40 billion USD bond purchase will increase market liquidity, lower short-term interest rates, and benefit risk assets. Pessimists worry that if the Fed needs to buy bonds to maintain reserves, it could indicate liquidity issues in the banking system.

From the timing perspective, this operation coincides with news about Trump naming Fed successors, which is hard not to associate. If Hassett or Warsh takes office and pushes for more easing, this “technical maintenance” could be a precursor to large-scale bond purchases in the future. Traders are closely watching upcoming employment data and FOMC speeches for more signals.

Market Reactions to the Bond Purchase Plan

Surge in Gold as a Safe Haven: Spot gold rose 1% to 4,344.40 USD, just about 40 USD below its all-time high. The US dollar index hovers near two-month lows, making gold more attractive to international buyers.

Silver Hits Record High: Spot silver increased 2% to 63.23 USD, reaching a record high of 64.65 USD on Friday. Year-to-date, it has risen over 115%, supported by ongoing tight supply.

Risk Asset Sentiment Cautious: Despite increased liquidity benefiting stocks and Bitcoin, Asian markets declined on Monday, with concerns about whether tech companies can sustain high valuations and ongoing heavy AI investments.

Rate Cut Expectations and Gold Price Outlook for 2026

Markets remain highly focused on the Fed’s policy outlook. After the third consecutive rate cut last week, investors currently expect two rate cuts next year. The upcoming US employment report will be crucial in testing this expectation. In a low-interest-rate environment, non-yielding assets like gold are typically more attractive.

Goldman Sachs analysts stated: “We still expect that, under the Fed’s easing stance, ongoing central bank gold purchases and inflows from private investors will push gold prices to 4,900 USD by the end of 2026.” They note that high-frequency central bank buying has become a “long-term trend” and reaffirm their forecast of an average monthly central bank gold purchase of 70 tons in 2026.

ANZ Bank analysts believe that gold may show a “peak and dip” pattern in 2026, reaching close to 4,800 USD before the second quarter ends and then retreating. They also believe that resilient investment demand and central bank buying remain key factors supporting gold prices.

In their report, ANZ Bank points out that India’s move to allow pension funds to invest in gold and silver ETFs could boost institutional investor participation. The bank states: “We believe such regulatory measures help build confidence and improve investor sentiment, thereby supporting higher allocations in portfolios.”