Author: Long Yue
Source: Wall Street Insights
The selection process for the next Federal Reserve Chair is entering its final stage. Although White House National Economic Council Director Hassett is currently in the lead, Trump's decision to initiate a final round of interviews indicates that the final candidate is far from being a "done deal."
Today, according to a report by the UK's Financial Times citing three senior US government officials, Trump and Treasury Secretary Bessent plan to meet with former Federal Reserve Governor Warsh this Wednesday. This move marks the official start of the final round of interviews to find a successor to the current Chair Powell.
This latest development suggests that Hassett's nomination is not yet a sure thing. In addition to Hassett and Warsh, the final candidate list includes two other shortlisted individuals from among Federal Reserve Governors Waller and Bowman, as well as BlackRock executive Rick Rieder, among others. The final decision is expected to be announced in early January next year.
The core impact of this personnel change lies in the future direction of monetary policy. Some Wall Street investors have already expressed concerns that Hassett, who is closely aligned with the president, might cut interest rates too aggressively, potentially posing risks to the market.
Hassett Leads, but Term Length May Be Uncertain
In recent weeks, Hassett has emerged as the frontrunner to succeed Powell. However, Trump administration officials have floated the idea of Hassett serving a shorter term as Fed Chair than the normal tenure. The regular term for a Federal Reserve Chair is four years and is renewable.
Two other informed sources stated that Hassett himself had suggested to Bessent that he take over Powell's seat on the Federal Reserve Board, a term that ends in January 2028. This flexible arrangement leaves room for future personnel planning.
Bessent Could Still Take Over the Fed
Treasury Secretary Bessent plays a key role in this selection process. According to officials, he submitted a list of four names to the White House, which included both Hassett and Warsh. Although Trump has repeatedly expressed publicly his desire for Bessent to serve as Fed Chair, Bessent himself has stated he has no interest in the position.
However, if Hassett's term is shortened, it could pave the way for Bessent to take charge of the Fed later in a potential second Trump term. This potential arrangement hints at the longer-term strategic considerations that may underlie the current selection process.
Market Concerns and Hassett's Response
Hassett's leading position has already caused unease among some bond investors. It is reported that these investors have conveyed to the Treasury Department their concern that Hassett might cut interest rates aggressively. They believe that if this leads to persistently high inflation, it could destabilize the $30 trillion US Treasury market.
To alleviate market concerns, Hassett recently attempted to emphasize the importance of central bank independence. At an event on Tuesday, he stated that although he believes there is still room for further rate cuts, the "most important job" of the Fed Chair is to "focus on economic data and avoid getting involved in politics."
The entire selection process is taking place against the backdrop of Trump's long-standing criticism of the current Chair Powell. Over the past year, Trump has consistently criticized Powell for not lowering borrowing costs faster and more significantly. Markets widely expect the Fed to announce a 25 basis point rate cut this Wednesday, lowering the target range for the federal funds rate to a three-year low of 3.5% to 3.75%.
Even so, Trump has publicly called for US borrowing costs to be reduced to a level of 1%. For any new Chair, balancing the president's expectations with maintaining the central bank's independence will be a significant challenge.
