Trump's Fed Pick Pushes Rate Cuts as Yields Defy Expectations

Donald Trump is narrowing down his list of candidates to succeed Jerome Powell as Federal Reserve chair, a move that has intensified speculation about the central bank's future policy trajectory as the U.S. economy navigates a delicate balance between inflation and growth. With the Fed's December policy meeting approaching, officials remain in a pre-decision quiet period, but White House National Economic Council Director Kevin Hassett has already hinted at a potential early end-of-year nomination, suggesting the president's chief economic adviser is a frontrunner. The choice of chair, which will shape monetary policy through 2026, carries significant weight as markets anticipate rate cuts to counteract a softening labor market and persistent inflation above the Fed's 2% target.

Market expectations for lower interest rates in 2026 are already priced into financial instruments, with the CME FedWatch Tool forecasting a federal funds rate of around 3% by December 2026, down from the current 3.75%-4% range. Prediction markets further reinforce this outlook, with Kevin Hassett viewed as the most likely nominee to steer the Fed toward rate reductions. Such a shift aligns with Trump's longstanding advocacy for accommodative monetary policy, which has found an echo in recent comments by Federal Reserve Bank of New York President John Williams, who signaled room for further easing as labor market pressures ease.

The Fed's policy path is influencing broader financial markets, including cryptocurrencies. Digital asset investment products saw a $1.07 billion inflow last week as rate-cut hopes resurged, reversing four weeks of outflows. Bitcoin and Ethereum attracted the most capital, with XRP leading the way with a record $289 million in inflows. However, the U.S. 10-year Treasury yield remains stubbornly above 4%, defying expectations that rate cuts would drive bond yields lower. Analysts attribute this resilience to concerns over fiscal debt, abundant bond supply, and the dollar's relative strength despite easing signals.

The political context adds another layer of complexity. While the Fed's focus remains on inflation and employment, Trump's broader economic agenda-including regulatory rollbacks in the crypto sector-has drawn attention. A recent U.S. House report criticized the Biden administration's approach to digital assets as a "choke point," highlighting regulatory uncertainty and enforcement-heavy strategies. Trump's administration, meanwhile, has moved to reverse Biden-era restrictions, with the House passing a stablecoin regulation bill and the Senate advancing wider crypto oversight legislation.

Looking ahead, the Fed's 2026 meeting calendar, with decisions scheduled in January, March, and beyond, will provide critical junctures for rate decisions. Policymakers' own projections suggest a more cautious approach, with rates expected to remain above 3% in most scenarios through 2026. Yet, with a new chair likely to prioritize rate cuts, the central bank's actions will remain a focal point for markets balancing inflation risks against economic slowdowns as analysts project.