Everything we need to know about the potential new FED chief

The future of Federal Reserve policy — which has served as the linchpin of the second-longest bull run in market history — hinges on a choice between conformity and change.

One side are those offering basically the same path the central bank has been on for the past decade or more, a course that includes low interest rates and a heavy hand when it comes to regulating the nation's banking system. They're represented by current Chair Janet Yellen as well as incumbent Governor Jerome "Jay" Powell and dark horse Neel Kashkari, the head of the Minneapolis Fed.

On the other side are the agents of change. They would chart a Fed that would take its foot off the accelerator more quickly, raising rates and unwinding the $4.5 trillion balance sheet built up during the crisis-era stimulus efforts. On top of that, they would ease up on banks, and are represented most prominently by current front-runner Kevin Warsh, a former Fed governor, and longshot John Taylor, a Stanford economist known for the rate-setting rule bearing his name.

Then there's the middle road. Gary Cohn, currently President Donald Trump's chief economic advisor, probably would advocate both a more dovish approach to rates, like the status quo group, and a looser regulatory approach, like the rebels.

It will be up to Trump to make the choice, and he has indicated he will do so in the next two or three weeks.

Whichever side prevails, or whether it's yet another way that the market has not considered, will be key both for the future of monetary policy as well as the economy.

While Fed officials tend to hold their own ideological positions, it's rare for them to openly disagree. During Yellen's tenure, most rate decisions have passed either unanimously or with only one or two dissenters.

If she is changed, it will be a great deal of maneuver in the policy of the central bank.

"In terms of market impact, much of the immediate market reaction to an announcement would come from is it Warsh or not because: i) Warsh is currently the favorite and so at least marginally priced in. If there is a suprice, we may see a serious decline in USD and US stocks and indices.

One of the issues the market will be watching is whether the new Fed advocates a "rules-based" approach to rate policy. Essentially, that means the policymaking Federal Open Market Committee would raise or lower rates based on gauges like the unemployment rate and inflation.

Trump being Trump, though, the final decision is hard to handicap. PredictIt, which handicaps the probable outcome of various events, has Warsh as the leader with a 47 percent chance, though Powell has come on strong lately and stands at 32 percent, with the rest of the field well behind.

Source: Bloomberg Pro Terminal

Junior Trader Stefan Panteleev

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