Wall Street bosses and corporate CEOs alike have launched a last-ditch effort to persuade President Trump not to pick Kevin Hassett as the next chairman of the Federal Reserve – but they aren’t making any big bets they’ll succeed, On The Money has learned.
Like all things involving Trump, the president is rarely moved by outside pressure and generally operates from the gut. And in his gut, it’s pretty clear he wants Hassett, the current chief of the National Economic Council, to replace Jerome Powell.
The prediction markets have Hassett’s chances of succeeding Powell, who Trump privately and publicly loathes, at around 80%. Trump, meanwhile, clearly loves Hassett, a longtime Trump loyalist who served as head of the Council of Economic Advisers in his first term.
Hassett is TV ready (a big presence on my employer Fox News explaining MAGA economics) and has an accomplished resume. He holds a PhD in economics from the University of Pennsylvania and has served time in think tanks and at the Fed as an economist.
The problem for Hassett, as for any Fed chair, is that his ultimate master isn’t the president who appointed him, but rather the bond markets. In recent weeks, corporate CEOs, money managers and Wall Street executives have warned the White House that Hassett lacks markets want from a Fed chair: independence.
They see Hassett as too political, too eager to appease the president to spur growth to lower rates and ignore inflation, the other more important part of the Fed’s dual mandate. They are pointing out how he recently downplayed a spike in inflation, presumably not to get cross with his current boss, among other instances where he seemed to bend economic reality to fit Trump’s wishes.
The critics are said to have also stated that Hassett has a lack of credibility with the Fed staff because he’s seen as a pawn of the White House, and will need to push through interest rate cuts as Trump wants against a Federal Reserve board that’s divided because of lingering evidence of inflation.
A cut in short term rates to where Trump wants them – much lower than they are – would be seen by bond traders as inflationary and drive longer-term interest rates higher.
It should be noted that consumer rates, like mortgages, are mostly priced off the 10-year and 30-year bond, not the Fed Funds rate that the Fed controls, so Hassett could be facing a “Liz Truss moment,” named after the short-live British PM who left office as as soon as she got there when traders began dumping the UK pound and its debt sending interest rates higher.
If interest rates spike, not only are mortgages and other loans less affordable to consumers, the stock market is likely to crater as it did during just after Trump announced his massive “Liberation Day” tariff agenda only to back off of the stiff levies when bonds and stocks collapsed.
“Hassett has a real lack of credibility inside the Fed and outside,” said one economist directly involved in the selection process.
In response, White House spokesman Kush Desi said, “President Trump has assembled the best and most experienced economic team in modern history, a team that has already cooled Joe Biden’s inflation crisis, secured historic trade deals, and delivered working-class tax cuts.
“The President will continue to nominate the most qualified individuals to the federal government, and until an announcement is made by him, any discussion about potential nominations is pointless speculation,” Desai added.
Of course, no Fed chair is 100% politically independent. Janet Yellen worked on Bill Clinton’s economic team before becoming Fed chair under Barack Obama, and later served as Joe Biden’s Treasury Secretary where she rationalized some of the most lavish spending by our already bloated welfare state in recent history.
Powell, who will be stepping down when his term ends next year, aided the Biden presidency’s effort to grow the size of government by printing money at a fevered pitch even after the Covid lockdowns ended. That move, coupled with Yellen’s spending, stoked skyrocketing inflation.
But Hassett seems, at least according to his critics, to be considered particularly vulnerable to politics and Trump’s heavy hand, and bond investors are wary of both. If Trump does heed such warnings, the other people on the short list include former Fed governor and academic Kevin Warner, and current Fed governor Christopher Waller.
