Trump's Fed Pick Could Spur Aggressive Rate Cuts, Weigh on Market Stability

President Donald Trump Is Nearing a Decision on His Next Federal Reserve Chair

President Donald Trump is nearing a decision on his next Federal Reserve chair, with Kevin Hassett emerging as the top contender. The search, which has been a focal point of the administration, is expected to conclude before the December 25 holiday. Hassett, a familiar face from Trump's first term and the current director of the National Economic Council, has publicly endorsed the president's push for aggressive interest rate cuts.

The Fed chair position is critical as current Chair Jerome Powell faces mounting pressure from Trump, who has repeatedly criticized him for not lowering rates quickly enough. The president has even threatened to fire Powell, saying he'd "love to fire his ass" according to reports. With Powell's term set to expire in May, the urgency for a replacement is increasing, and Trump wants to finalize the selection by year-end.

Hassett's open support of Trump's economic views, including the need for steep rate cuts, makes him a strong candidate. "I think that the president thinks rates could be a lot lower, and I agree with him on that," Hassett recently said, echoing Trump's stance according to Bloomberg. His willingness to align with the president's goals has drawn attention, but also concern from some investors who fear politicization of the Fed according to Business Insider.

The Candidates and the Interview Process

Treasury Secretary Scott Bessent has been leading the selection process, narrowing the field to five candidates: Hassett, former Fed Governor Kevin Warsh, current Fed Governor Christopher Waller, Vice Chair for Supervision Michelle Bowman, and BlackRock executive Rick Rieder. Hassett, Waller, and Warsh have all been highlighted by Trump as top choices.

Bessent, however, has faced internal challenges. Trump has shown impatience with the process and even hinted at firing Bessent for defending Powell earlier this year. Despite this, a White House official said the administration maintains immense confidence in Secretary Bessent. The interviews are expected to wrap up this week, with finalists set to meet with Chief of Staff Susie Wiles and Vice President JD Vance before Trump makes his final decision.

Market Reactions and Analyst Concerns

The potential appointment of Hassett has raised concerns among market analysts. Hassett's close ties to Trump and his support for rapid rate cuts could signal a shift in the Fed's traditionally independent policy-making. A research note from Erste Group warns that Hassett's appointment carries the highest risk of triggering market volatility, as it would represent a departure from the Fed's usual autonomy according to Bloomberg.

The Fed has already started cutting rates in 2025, reducing the benchmark rate by 25 basis points in both September and October. However, the central bank remains divided on the outlook for inflation and the labor market. A 50 basis point cut in December, as Hassett has suggested, would be more aggressive than recent moves. Investors are closely watching how these developments affect market stability according to The New York Times.

Political and Economic Implications

Trump's push to install a Fed chair who aligns with his economic agenda has drawn comparisons to his first term, when he nominated Powell. That decision later became a source of frustration as Powell did not lower rates at the pace Trump desired. With Hassett, Trump would likely have more direct influence over the central bank's policy decisions. This could have far-reaching effects on interest rates, borrowing costs, and overall market sentiment according to Bloomberg.

Analysts also note that Trump's broader economic strategy, including his use of tariffs and pressure on the Fed, has had mixed results. While some price pressures have eased, concerns over inflation and trade policies persist. Trump's recent tariff rollbacks on food items and his promise to send $2,000 checks to lower- and middle-income households reflect his ongoing efforts to address inflation according to Economic Times. However, long-term economic stability remains a challenge as his policies face scrutiny from both political opponents and business leaders according to Economic Times.

What This Means for Investors

Investors are closely watching the Fed chair selection process and its potential impact on financial markets. A Hassett-led Fed could mean more aggressive interest rate cuts, which might lower borrowing costs and stimulate economic activity. However, it could also lead to uncertainty as markets adjust to a more politically aligned central bank. The Erste Group research note highlights this risk, noting that Hassett's appointment could lead to a market reaction due to concerns over policy independence according to Bloomberg.

As of late November, Hassett has lost some of his lead on prediction markets, with Waller now seen as a strong contender. Trump, however, has hinted that he is close to making a final decision, saying, "I think I already know my choice" according to Business Insider. The market will likely remain on edge until the announcement is made.