During a White House event on Friday, President Donald Trump conveyed a wish to maintain Kevin Hassett, director of the National Economic Council, in his current role rather than advancing him to the chairmanship of the Federal Reserve. When spotting Hassett in the audience, Trump said, "I actually want to keep you where you are, if you want to know the truth," praising his recent television appearance as "fantastic."
Though not an explicit decision, these remarks have disrupted expectations swirling around the administration’s comprehensive search for Jerome Powell’s successor at the Federal Reserve. The choice of Fed chair is one of the most consequential global financial appointments, with significant influence over monetary policy.
Until now, Hassett has generally been regarded as the leading candidate to replace Powell, largely due to his longstanding advisory role to President Trump since the latter's first term. Indeed, Trump referred to Hassett as a "potential Fed chair" as recently as last month.
Powell’s current term is set to expire on May 15, though there remains the uncommon possibility that he could continue serving in another capacity on the Fed’s Board of Governors. Trump initially appointed Powell in 2018 but grew critical of him for increasing the Federal Reserve’s benchmark interest rate in that year.
Alongside Hassett’s prospects, Kevin Warsh, a former Federal Reserve governor, has emerged as a prominent contender. Warsh’s candidacy has gained traction following recent developments involving the Justice Department and the Federal Reserve, which have brought renewed focus on the central bank's autonomy.
Last week, the Justice Department issued subpoenas to the Federal Reserve, a first in the institution’s history while its chair, Powell, remains in office. Powell publicly condemned the subpoenas, suggesting they represented punitive measures motivated by the Fed’s reluctance to lower interest rates as aggressively as President Trump desired. His direct criticism was conveyed through an unusually forthright video statement released on Sunday.
This unfolding criminal inquiry, related to Powell’s testimony before the Senate Banking Committee last June about a substantial $2.5 billion building renovation project, has sparked controversy and pushback, especially among Republican senators who largely dismissed the notion that Powell had engaged in wrongdoing.
These controversies have stoked apprehensions in the Senate regarding the potential erosion of the Federal Reserve's independence from day-to-day political pressures. Observers suggest that this environment may diminish Hassett’s chances for confirmation given his close association with the president. Krishna Guha, an analyst at Evercore ISI, noted in a client briefing that the backlash complicates prospects for Hassett, who is seen as distinctly aligned with Trump. Guha further commented that Warsh enjoys trust among Senate Republicans and would likely face a smoother confirmation process.
Historically, Warsh is perceived as a monetary "hawk," favoring higher interest rates to combat inflation, in contrast to "doves" who generally advocate for lower rates to encourage employment and economic growth. Market indicators appeared to respond to these dynamics, with the yield on the 10-year Treasury note rising to just above 4.2% on Friday from approximately 4.17% the previous day. This uptick likely reflects the market’s assessment that Warsh’s improved odds might herald less aggressive rate cuts compared to a potential Hassett-led Federal Reserve.