Traders Price in Two Cuts in 2026 as Fed Chair Battle Narrows to Two Kevins

White House economic advisor Kevin Hassett has reiterated that President Donald Trump would have no formal role in Federal Reserve interest rate decisions if he is confirmed as the next Fed Chair according to a statement. Speaking on CBS's Face the Nation, Hassett emphasized that while Trump's views would be heard, they would only carry weight if supported by sound data and economic reasoning as research shows. He stressed that the Federal Open Market Committee's (FOMC) decision-making process is vote-driven and insulated from political pressure.

Trump has been vocal in his criticism of current Fed Chair Jerome Powell, whose term ends in May 2026. The president has repeatedly pushed for faster interest rate cuts, even suggesting a target as low as 1% by 2026 according to market analysis. Hassett, one of the top candidates for the Fed chair role, has sought to reassure markets that the central bank's independence from political influence would remain intact as reported by financial sources.

Recent FOMC meetings have seen the Fed cut interest rates amid concerns over the labor market and the broader economic outlook. The central bank has signaled that further cuts could be on the horizon, but there is division among policymakers over the pace of action. With Powell's tenure nearing its end, Trump has narrowed the field of potential successors to two Kevins: Hassett and former Fed Governor Kevin Warsh as stated in recent reports.

The Fed's Stance on Independence

Hassett's comments come amid broader concerns about the Federal Reserve's independence. Trump's efforts to oust Fed Governor Lisa Cook have drawn legal challenges and raised questions about his ability to reshape the central bank's leadership according to Reuters. However, Hassett has sought to allay fears by reaffirming that the Fed's institutional independence would not be compromised under his leadership as announced in an economic report.

The Federal Reserve Board recently reappointed all regional bank presidents, further reinforcing the central bank's independence from political interference according to financial news. This move has helped to ease concerns that Trump might use his influence to shape the Fed's composition. The reappointments also extend the terms of key officials beyond the current administration's tenure.

Market Reactions and Policy Uncertainty

Markets have been closely watching the

Fed's rate-cut trajectory, with investors reacting to each decision. Hassett has stated there is "plenty of room" for further cuts, though he noted that rising inflation could alter this outlook according to financial commentary. The Fed's latest rate cut brought the key rate to a range of 3.50%–3.75%, the lowest in about three years as reported in economic analysis.

Prediction markets have shifted slightly as Trump narrows the list of potential Fed chair candidates to Hassett and Warsh. While Hassett was once the clear front-runner, his odds have dipped slightly in recent weeks as reported by financial media. Analysts are monitoring whether Trump will prioritize a candidate who is more aligned with his aggressive stance on rate cuts or one with a stronger institutional reputation.

Risks to the Outlook

Despite the Fed's recent easing, there is still significant uncertainty over the pace and extent of future rate cuts. Some Fed officials have taken a more cautious stance, with several regional bank presidents advocating for a slower approach according to Bloomberg opinion. This division within the FOMC has led to more conservative expectations in the markets, with traders now pricing in only two 25-basis-point cuts in 2026 and no additional easing until early 2028 as noted by trading analysis.

The central bank's balance sheet expansion has also raised questions about its broader impact on financial markets. While the Fed has emphasized that its actions are aimed at maintaining liquidity in the banking system, some analysts argue that these measures could unintentionally fuel asset bubbles as discussed in financial commentary. The challenge for the next Fed chair will be navigating these competing pressures while maintaining the central bank's credibility and independence.

What This Means for Investors

Investors are keeping a close eye on the Fed's next moves, particularly as they relate to mortgage rates, corporate financing, and consumer borrowing costs. A Fed chair who supports more aggressive rate cuts could help boost asset prices but may also risk inflationary pressures if the economy shows resilience according to financial analysis. Conversely, a more cautious approach could lead to a slower adjustment in borrowing costs but might delay the economic benefits of rate cuts.

With the Fed's next chair likely to be announced in mid-January, markets will continue to react to each development. The central bank's independence remains a key factor in shaping investor confidence, particularly given Trump's history of criticizing the Fed's decisions. As Hassett and Warsh emerge as the final contenders, the focus will remain on how each candidate balances Trump's expectations with the Fed's broader mandate.