Market Prep: FED Chairman and Emerging Markets, FOMC Prep
Rotation Analysis
Hello Traders,
As we move into the final week of January 2026, the speculation surrounding the next Federal Reserve Chair has reached a fever pitch:
The “Rieder Factor” and the US Dollar
Until very recently, Kevin Warsh was the clear favorite. However, as of late last week, betting markets like Polymarket and Kalshi have Rieder’s odds jumping past 45%, following President Trump’s recent praise of him as “very impressive.”
Why Rieder as Fed Chair would likely weaken the USD:
The “Neutral Rate” Target: Rieder has been vocal that the current federal funds rate is too restrictive. He has publicly suggested that the “equilibrium” rate should be closer to 3% (down from the current 3.5%–3.75% range). A commitment to lower rates is historically a “sell” signal for the dollar.
Creative Liquidity Tools: Unlike traditional Fed insiders, Rieder views the Fed’s toolkit as more than just a single interest rate lever. He has discussed using the balance sheet more “innovatively”—potentially through targeted Treasury purchases (a soft form of Yield Curve Control) to bring mortgage rates down to the 5% range.
Focus on Housing and Labor: His philosophy leans toward protecting the “velocity of housing” and preventing labor market deterioration. This proactive, accommodative stance suggests he would be less likely to defend the dollar at the expense of domestic growth.
The Institutional Pivot: Rotating to Emerging Markets
Why Institutions are Selling USD for EM:
Valuation Extremes: The USD remains historically expensive. Institutions are looking at EM equities, which are trading at significant discounts compared to the S&P 500, especially in sectors like Banks and Semiconductors in India and Southeast Asia.
The “Carry” Trade: Real interest rates in many EM countries remain higher than in the US. If a Rieder Fed begins a steady march toward 3%, the “carry” (the profit from holding higher-yielding EM currencies) becomes much more attractive.
Fiscal Discipline: Unlike the heavy deficit spending in the US, several major EM players (Mexico, Brazil) have maintained relatively disciplined fiscal balance sheets throughout 2025, making their local-currency debt a “flight to quality” for yield-hungry managers.
The AI Supply Chain: As the AI trade matures, institutions are rotating from US “Mega-cap” tech into the “pick and shovel” EM companies—specifically hardware and refining in Taiwan, South Korea, and Vietnam.
Now, let’s deploy our scanner to pinpoint exactly where the capital is flowing and identify the strongest pockets of momentum.
We have been proposing investments in emerging markets since early 2024 for our discord members, and outside of the USA heavier since 1/2025, which we mentioned in our Wall Street Journal article. and those proved to be excellent trades thus far.
We still think many of those names are just starting.
