Trump's Pick for Fed Chief Sparks Debate Over Policy Independence

Federal Reserve policy faces mounting pressure amid shifting leadership expectations and evolving economic forecasts. As the Trump administration moves closer to selecting a successor for outgoing Federal Reserve Chair Jerome Powell, the focus remains on whether the central bank will maintain its independence or align more closely with administration priorities. Kevin Hassett, the director of the National Economic Council, is seen as the most likely nominee for the role, according to a recent CNBC survey. Hassett's close working relationship with Trump during the pandemic is cited as a key factor in his favor, though some analysts question whether his nomination would compromise the Fed’s policy independence [1].

While Hassett leads as the preferred choice for Trump, the survey revealed that former Fed Governor Kevin Warsh is considered the most qualified candidate by many respondents. The appointment of a more dovish official is anticipated to influence the Fed’s future stance, particularly regarding interest rates. Trump has repeatedly criticized Powell for his reluctance to cut rates, citing concerns over inflation fueled by tariffs. The Federal Open Market Committee has resisted aggressive rate cuts due to these inflationary pressures, but expectations for two reductions in 2025—likely in September and December—remain high [1].

Inflation expectations remain elevated, with the 12-month CPI forecast hovering near 3% for 2025 and 2.9% by 2026. Nearly two-thirds of survey participants anticipate that the inflationary effects of Trump’s proposed tariffs will persist for some time. This outlook places the Fed in a difficult position: balancing political pressure for rate cuts with the need to control inflation. Richard Bernstein, CEO of Richard Bernstein Advisors, described this as a “rock and two hard places” scenario, where the Fed must weigh the benefits of rate cuts against the risks of inflation and employment stability [1].

The Fed’s long-term policy framework is also under scrutiny. A 41% plurality of respondents in the CNBC survey suggested that the Fed should abandon the dot plot, which provides anonymized rate forecasts. Additionally, 52% of respondents supported maintaining the 2% inflation target, while 44% advocated for a flexible range between 1.4% and 2.7%. The controversial average inflation targeting policy, which allows for higher inflation to offset past undershoots, remains a divisive issue. A 44% majority called for its elimination, while 37% supported its continuation [1].

As the central bank prepares for its annual Jackson Hole symposium, investors are closely watching Powell’s anticipated speech for clues about the Fed’s near-term direction. Over 70% of respondents in the CNBC survey expect a neutral tone from Powell, with only 14% anticipating a dovish stance. The outcome of this speech could significantly shape market expectations for rate policy and influence the dollar’s performance in the weeks ahead [1].

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[1] Hassett likely to be Trump's pick for Fed chief, though Warsh is more qualified – CNBC survey finds (https://www.cnbc.com/2025/08/20/hassett-likely-to-be-trumps-pick-for-fed-chief-though-warsh-is-more-qualified-cnbc-survey-finds.html)

[2] How Trump is using the Fed chair selection process to pressure Powell to lower rates (https://www.marketwatch.com/story/how-trump-is-using-the-fed-chair-selection-process-to-pressure-powell-to-lower-rates-df456c6d)

[3] Dollar drifts as investors ponder Fed independence ahead of Powell speech (https://www.reuters.com/world/middle-east/dollar-drifts-investors-ponder-fed-independence-ahead-powell-speech-2025-08-21/)