Potential Leadership Shift at the Fed Could Impact Interest Rates Next Year By: Stock Market Charlie

The Federal Reserve building stands prominently under a clear blue sky, showcasing its grand architecture and the American flag waving above the entrance.

Key Takeaways

• Trump will nominate a successor for Jerome Powell, whose term ends in May, as Powell has resisted Trump's demands for significant rate cuts.

• Kevin Hassett, the leading candidate to become the next chair of the Federal Reserve, is expected to advocate for lowering interest rates.

• There are several unresolved questions regarding Hassett's potential nomination, including which FOMC member he would replace.

Kevin Hassett, the frontrunner to assume the role of Federal Reserve chair in May, has consistently supported the idea of the central bank reducing interest rates. Hassett is the prime candidate to succeed Federal Reserve Chair Jerome Powell when his term concludes in May, Bloomberg reported this week. President Donald Trump is set to announce his decision for the Fed chair nominee in the coming weeks.

Hassett, a top economic advisor to Trump and the current Director of the National Economic Council, has recently criticized the Fed's leadership for not reducing interest rates swiftly enough, aligning with Trump's perspective. The central bank has already lowered interest rates by a quarter-point at its last two meetings and is expected to do so again at its upcoming meeting in December. However, the 12 officials who vote on policy are divided on whether to maintain higher rates to curb inflation, which remains above the Fed's 2% annual target, or to lower them to support the struggling job market. The Fed's pace of rate cuts has not met Trump's expectations, and he has repeatedly threatened to dismiss Powell before his term ends, stating that his choice for Fed chair would be someone inclined to lower rates. Hassett's recent public statements clearly indicate his stance on the issue.

Proposal to Lower Interest Rates: Hassett's Strategy to Boost the Economy Despite Inflation Risks

In an interview with Yahoo Finance this week, Hassett confidently asserted that the bank should cut interest rates despite the recent increase in job growth in September. He accused Powell of having "partisan" motivations in his monetary policy decisions and emphasized that the next Fed chair must "clean house."

In other recent interviews, he has strongly defended Trump's economic policies, including his controversial tariffs, and expressed his belief that inflation will drop to around 1% next year while economic growth accelerates. Lower interest rates would decrease borrowing costs on short-term loans and potentially stimulate the economy. However, some economists and Fed officials caution that cutting rates too aggressively could boost inflation, especially with Trump's tariffs already pushing up prices.

Hassett Poised to Step In, But Who Will He Replace?

Hassett's nomination brings significant questions about the central bank's future and its autonomy from White House influence. His confirmation by the Senate is necessary to assume the position. It remains uncertain who on the 12-member FOMC he would succeed, as he is not currently part of the board, unlike other candidates Michelle Bowman and Christopher Waller. Even though Powell would no longer lead the Fed's board of governors, his tenure as a board member lasts until 2028, allowing him the option to remain. Powell has chosen not to comment on whether he will depart in May.

A seat is likely to become available for Hassett if the Supreme Court permits Trump to remove sitting board member Lisa Cook. Another possibility is that he could succeed fellow Trump nominee and rate-cut advocate Stephen Miran, whose term concludes in January 2026.

An unprecedented power split could also occur, as reported by Fortune, where Powell might continue as the chair of the FOMC while Hassett assumes the role of chair of the Fed's board of governors. These are technically distinct positions, and the FOMC chair is elected by the board itself, which has traditionally chosen the Fed board chair as its own chair, but is not legally obligated to do so.

Best Regards,

Stock Market Charlie