Kevin Hassett, head of the White House National Economic Council, recently shared important views on the Federal Reserve's interest rate path. As a top contender widely seen as the most likely successor to Powell, Hassett clearly stated that pre-setting interest rate targets for the next six months is an irresponsible act, emphasizing the importance of monetary policy decisions strictly following economic data trends.
I. Interest Rate Decisions Should Avoid Mechanical Forward Guidance
Hassett elaborated on his core stance during a Monday interview with CNBC: "The role of the Federal Reserve Chair is to closely track economic data, adjust policies accordingly, and clearly explain the reasoning behind decisions to the public.
Therefore, simply declaring 'I will follow a set plan over the next six months' is highly irresponsible." When asked how many rate cuts might be needed in 2026 to align with economic principles, Hassett avoided giving a specific number.
He stated: "I prefer not to guide market expectations by predicting the number of rate cuts. I believe the only thing policymakers need to do is closely monitor data developments." This statement reflects his policy philosophy of opposing rigid forecasts and advocating flexible responses.
II. Consensus Building and Market Expectations Under Powell's Leadership
Earlier this year, U.S. President Trump repeatedly called publicly for the Fed to cut the benchmark rate below 2%, while the target range was then between 3.75% and 4%. Currently, markets widely expect Powell and the Federal Open Market Committee (FOMC) to cut the benchmark rate by another 25 basis points at Wednesday's meeting.
Hassett gave a positive assessment of Powell's work. He believes Powell has "excelled at coordinating differing views within the Committee," laying the groundwork for a consensus on a rate cut this week. Hassett said: "I believe Chairman Powell agrees with me on this point—that we should probably maintain a cautious stance, closely follow the data, and further moderately cut rates." Although FOMC members seem divided on the upcoming decision, Hassett noted that Powell has successfully guided policymakers to align "around" the expectations reflected in futures markets.
As of Monday, futures market data showed a nearly 100% probability of a 25 basis point cut on Wednesday.
III. AI's Supply Shock and New Dynamics in the Bond Market
The White House economic chief reiterated his optimistic view on investments in artificial intelligence. He believes AI investment could replicate the positive supply shock brought by the computer boom of the 1990s, creating policy space for the Fed to "let the economy run hotter."
Hassett analyzed: "If we can recreate the scenario of the 90s, achieving both falling inflation and economic growth driven by a positive supply shock, then the 10-year U.S. Treasury yield has ample room to fall." He also noted that the bond market has "significantly improved" compared to the beginning of the year. He specifically mentioned that Treasury yields have shown a downward trend since early 2025.
Hassett added: "Yields are currently in a state of slight fluctuation, which I think partly reflects market uncertainty about the Fed's specific actions and policy signals at this meeting."
IV. The Era of Data-Driven Decision-Making
Hassett's comments highlight the necessity of data-driven monetary policy in the current global economic environment. By avoiding rigid forward guidance, the Fed can maintain policy flexibility to better respond to changing economic conditions. This cautious approach not only helps stabilize market expectations but also leaves necessary policy space to address potential economic risks.
