Trump may announce his nominee before Christmas, with White House economic advisor Kevin Hassett emerging as the frontrunner, as the market begins to price in expectations for interest rate cuts. “I think there is a good chance the president will announce the nominee before Christmas.” U.S. Treasury Secretary Scott Basset stated clearly in an interview with CNBC on November 25.
The selection process for the Federal Reserve chair has entered its final stage. Basset is leading the selection effort, having narrowed the initial list of 11 candidates down to 5 and completed the second round of interviews. This decision will shape the direction of U.S. monetary policy for the coming years.
Current White House National Economic Council Director Kevin Hassett stands out among the candidates as the top contender to succeed current Federal Reserve Chair Jerome Powell, whose term will end in May next year.
1. Selection Process: Answers Before Christmas
● The establishment of the Federal Reserve chair has entered a critical phase. Treasury Secretary Basset recently revealed that he is concluding the second round of interviews, with the final candidate expected to be announced before Christmas.
● Trump himself stated on November 18 that the interview process has officially begun and that he has a “preferred candidate.”
● The candidate list has been narrowed from over ten to five, including White House economic advisor Kevin Hassett, former Federal Reserve Governor Kevin Warsh, current Governor Christopher Waller, and Michelle Bowman, as well as BlackRock's Chief Investment Officer Rick Rieder.
● After Thanksgiving, the selection process entered a more intense second round of interviews. Basset emphasized that the interviews focus on how candidates would guide the Federal Reserve in this “very complex operation.”
2. Hassett's Advantages: Loyalty and Policy Alignment
Kevin Hassett's current leading position stems from his strong alignment with Trump's economic philosophy.
● According to Bloomberg, Trump’s advisors and supporters view Hassett as the top candidate for the Federal Reserve chair because he agrees with Trump’s desire for interest rate cuts.
● Hassett currently serves as the Director of the National Economic Council, overseeing the White House Digital Assets Working Group created by Trump in January. He previously served as the Chairman of the White House Council of Economic Advisers from 2017 to 2019 during Trump’s first term.
● In a recent interview with Fox News, Hassett explicitly expressed his support for interest rate cuts: “If I were the Federal Reserve chair, I would cut rates immediately because the data suggests we should do so.”
● George Pollack, an analyst at Signum Global Advisors, pointed out that Trump believes Hassett is the “most likely candidate to support government priorities.”
3. Market Reaction: Rising Expectations for Rate Cuts
● Traders have begun to bet that if Hassett takes the helm at the Federal Reserve, the Fed will cut rates by at least 75 basis points by June 2026, which is 25 basis points more than previously expected.
● Jordan Rochester, head of macro strategy at Mizuho, stated: “Hassett’s election means a rapid decline in short-term rates + a steepening yield curve.”
● However, contrasting this optimistic expectation, U.S. asset management firm Nuveen predicts that the Federal Reserve will cut rates by 50 basis points in 2026, the same as this year, but lower than the previously forecasted 75 basis points. The firm’s Chief Investment Officer Saira Malik said this revision reflects the risk of inflation remaining above the Fed's 2% target.
4. The Shadow of Bernanke
Hassett's path to nomination evokes memories of Ben Bernanke nearly twenty years ago.
● In 2005, when President George W. Bush nominated Bernanke to succeed Alan Greenspan, Bernanke was also serving as the Director of the National Economic Council. At that time, he was seen by the market as a politically reliable “safe” choice who could ensure policy continuity.
● Shortly after taking office, Bernanke faced the bursting of the U.S. subprime mortgage bubble and the global financial crisis. During this unprecedented crisis, he led the Federal Reserve in implementing a series of unconventional policies, including quantitative easing, whose decisiveness and independence exceeded initial expectations.
● History shows that a chair initially viewed as an “insider” will reveal their true policy stance and independence when faced with severe economic challenges.
5. Political Pressure and Market Volatility
If Hassett is appointed, he will face challenges on multiple fronts.
● Concerns about the Federal Reserve's independence will be a primary focus. Trump has publicly expressed dissatisfaction with current Chair Powell, believing he has not cut rates at the expected pace.
● Joe Kalish of Ned Davis Research pointed out that from the perspective of the Fed's independence, Hassett, as a cabinet member, would be the “worst choice.”
● However, the market's initial reaction has been unusually stable. After the news of Hassett becoming a frontrunner, the yield on U.S. 10-year Treasury bonds briefly dipped below 4% before stabilizing, with no significant sell-off or buying frenzy.
● At the same time, the long-term interest rate futures market has shown almost no movement, indicating that the market's expectations for the path of the federal funds rate over the next few years remain stable.
6. Gold and Safe-Haven Assets: Fiscal Concerns and a New Environment
Changes in the Federal Reserve leadership will also impact global asset allocation. The World Gold Council noted in June that fiscal concerns have become one of the factors supporting the gold market.
● The organization analyzed: “Ongoing fiscal concerns may trigger volatility in the bond market, prompting investors to seek other safe-haven assets, thereby supporting the gold market.” Recently, gold prices have shown remarkable gains, soaring from about $3,300 per ounce to nearly $4,400, with a cumulative increase of over 33%.
● Ray Dalio, founder of Bridgewater Associates, reiterated that portfolios should allocate 10% to 15% in gold. He believes that almost all major currency systems will eventually return to the “debt-gold-currency” cycle.
Market expectations suggest that if Hassett leads the Federal Reserve, there will be at least another 75 basis points cut by June 2026, which is 25 basis points more than previously expected. The movements of gold and the dollar will also be significantly affected, as fiscal concerns and changes in monetary policy may jointly drive up gold prices.
Regardless of whether the final nominee is Hassett, the direction of U.S. monetary policy is already at a turning point.
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