jakiro
Author: Xiao Yanyan, Jin Shi Data
U.S. President Trump said at a Cabinet meeting on Tuesday,He will announce his choice to succeed Powell as Fed chairman “early next year”, further prolonging the months-long “draft” process, even though he has said he already knows who will lead the world’s most important central bank.
Trump also mentioned at the meeting that Treasury Secretary Bessent, who is leading the selection process, does not want to serve as Fed chairman, but did not disclose who he might prefer.
Trump told reporters on Sunday that he knew who he planned to nominate as Powell’s successor.Powell’s term as Fed chairman ends in May next year.Trump did not answer when asked whether the candidate was Kevin Hassett, his chief economic adviser and a favorite in the online gambling market.He said again on Tuesday,List has been narrowed down to one person.
“I guess a potential Fed chair is here too.Can I say it?potential.He was a respected man, I can tell you that.Thank you, Kevin.” Trump said at a White House event later Tuesday.
Hassett, 63, served as chairman of the White House Council of Economic Advisers during Trump’s first term.He has proven his loyalty to the president through regular, if not weekly, appearances on CNBC, Fox News and other television shows.On those occasions, he supported Trump’s sweeping import tariff policy and called for lower interest rates.
As an avid television watcher, Trump likely sees Hassett frequently, unlike most other candidates.Hassett, whose office is located in the West Wing, has direct access to the president and has helped shape Trump’s views on trade, economic issues and monetary policy.
Interest rate cut advocates
Other potential candidates to succeed Powell include two current Fed governors, Bowman and Waller, former Fed governor Kevin Warsh and BlackRock’s Rick Reed.Bessant said he has completed two rounds of interviews with each of the candidates mentioned above and plans to submit a narrowed list of candidates to Trump and other White House officials this month.
Trump has made no secret of his preference for candidates who support low interest rates, and Hassett and other candidates are vocal advocates of low interest rates.That preference may be challenged by the current strength in the economy, which has made many Fed officials wary of pursuing easier policy.
As the selection process draws to a close, economists and financial markets are beginning to focus on what Trump’s choice means for the outlook for monetary policy.The new Fed leader is likely to face an economy regaining momentum next year but struggling to create jobs and with inflation remaining high.
“No matter who leads the Fed…monetary policy is determined by the state of the economy,” James Egelhof, chief U.S. economist at BNP Paribas, said on a conference call about the bank’s 2026 outlook.
The outlook includes expectations that resilient growth and persistent inflation will allow for just one rate cut next year, assuming the Fed is expected to cut rates again at its Dec. 9-10 meeting.Thereafter, Trump’s new Fed chairman will keep borrowing costs stable as inflation remains stubbornly at 3%.The Fed’s inflation target is 2%.
“The data will show that there is little need for more aggressive rate cuts beyond those we expect to be implemented,” Eggelhoff said.
If the economy does follow this path, it could become an early test of the new Fed chair’s independence, especially relative to Trump’s calls for ultra-low interest rates.If Hassett wins the job, it could test the strength of his belief that supply-side policies can deliver above-trend growth without sparking inflation, which most of his colleagues think is unlikely.
Judgments about the impact of artificial intelligence on trend growth, labor demand and wages are likely to be a core debate at the Fed in the coming months and years.
Resistance to further easing
The outlook for monetary policy also depends on a potentially divided group of policymakers who will end up working with the next Fed chair.
Powell does not necessarily have to leave the Fed completely when his term as chairman ends next May, and he has not yet said what he plans to do. Trump has long regretted nominating him as chairman in late 2017.On the Fed Board of Governors, three other members were appointed by former President Joe Biden and the remaining three were appointed by Trump.
The latest of these, Stephen Miran, Trump’s economic adviser, is the most vocal supporter of a steep rate cut.If Powell does not resign from the board at the end of his term as chairman, or if Trump fails in his attempt to oust Biden-appointed Fed governor Lisa Cook (the case is currently before the U.S. Supreme Court), Milan may need to step aside to make way for the new Fed chairman nominee.
Analysts at research firm LH Meyer, led by former Fed governor Larry Meyer, said:They have “long assumed” that Powell would remain on the Fed’s board of governors after he steps down as chairman, as a buffer against Trump’s efforts to rein in the central bank.The analyst added that after Trump tried to fire Cook, “Powell may now be even more convinced of the need for this.”
In addition, there are more than a dozen regional Fed presidents who constitute the strongest voice against further rate cuts.The Fed has cut rates by 25 basis points twice since September.One of the regional Fed presidents has already voted against a second rate cut, and two other regional Fed presidents who have policy votes this year have signaled they may boycott a third rate cut next week.
A rotating group of officials who will vote on the Federal Open Market Committee next year appear to be equally skeptical of further easing, as inflation has now been above target for the fifth consecutive year and the labor market is softening but not collapsing.
LH Meyer’s team believes that assuming policymakers’ latest forecast of only a 25 basis point rate cut in 2026 is maintained, “a new Trump-appointed Fed chair may be able to push for a second rate cut in 2026…but that’s about it” unless the unemployment rate rises above 4.5% or inflation falls back to target faster than expected.
