Author: Xiao Yanyan, Jinshi Data
US President Trump said at a cabinet meeting on Tuesday that he will announce his choice to succeed Jerome Powell as Federal Reserve Chairman "early next year," further extending the months-long "selection" process, although he had previously stated that he already knew who would lead the world's most important central bank.
Trump also mentioned at the meeting that Treasury Secretary Bessant, who is leading the selection process, does not want to serve as Fed Chairman, but did not reveal who he might prefer.
Trump told reporters last Sunday that he knew who he planned to nominate as Powell's successor. Powell's term as Fed Chairman will end next May.
When asked if his choice was Kevin Hassett, his chief economic advisor and a frontrunner in the online betting market, Trump did not answer. He reiterated on Tuesday that he had narrowed the list down to one person. "I guess a potential Fed chairman is here too. Can I say? Potential. He's a respected man, I can tell you that. Thank you, Kevin," Trump said at a White House event late Tuesday. Hassett, 63, served as chairman of the Council of Economic Advisers during Trump's first term. He has demonstrated his loyalty to the president through regular, if not weekly, appearances on television programs such as CNBC and Fox News. On these occasions, he has supported Trump's comprehensive import tariff policy and called for lower interest rates. As an avid television viewer, Trump is likely to see Hassett frequently, unlike most other candidates. Hassett's office is located in the West Wing of the White House, giving him direct access to the president and helping to shape Trump's views on trade, economic issues, and monetary policy. Other potential successors to Powell include current Federal Reserve Governors Bowman and Waller, former Governor Kevin Warsh, and BlackRock's Rick Reid. Hassett stated that he has completed two rounds of interviews with each of these candidates and plans to submit a final shortlist 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 precisely the public advocates for low interest rates. This preference could be challenged by the current strong economic momentum, which has made many Federal Reserve officials cautious about pursuing more accommodative policies. As the selection process nears its end, economists and financial markets are beginning to focus on what Trump's choice means for the future of monetary policy. The new Federal Reserve leader is likely to face a situation next year where the economy regains momentum but struggles to create jobs and inflation remains high. "Regardless of who leads the Fed… monetary policy is determined by economic conditions," said James Egelhof, chief U.S. economist at BNP Paribas, in a conference call regarding the bank's 2026 outlook. This outlook includes the expectation that robust growth and sustained inflation will allow for only one rate cut next year, assuming the Fed cuts rates once more at its December 9-10 meeting. After that, with inflation stubbornly holding at 3%, Trump's new Fed chairman will maintain stable borrowing costs. The Fed's inflation target is 2%. "The data will suggest that little more aggressive rate cuts are needed beyond what we expect," Egelhof said. If the economy does indeed follow this path, it could be an early test of the new Federal Reserve Chair's independence, especially in light of Trump's calls for ultra-low interest rates. If Hassett gets the position, it could test his conviction that supply-side policies can achieve above-trend growth without triggering inflation, a view held by most of his colleagues. The assessment of the impact of artificial intelligence on trend growth, labor demand, and wages is likely to be a central topic of debate at the Fed in the coming months and years. The outlook for monetary policy also depends on a potentially divided group of policymakers who will ultimately work with the next Fed Chair. Jerome Powell may not necessarily have to leave the Federal Reserve completely after his term as chairman ends next May, and he has not yet indicated what his plans are. Trump has long regretted nominating him as chairman in late 2017. Three other members of the Federal Reserve Board of Governors were appointed by former President Biden, and the remaining three were appointed by Trump. The most recent of these, Stephen Miran, is also Trump's economic advisor and is a strong advocate for significant interest rate cuts. If Powell does not resign after his term ends, or if Trump's attempt to remove Lisa Cook, a Biden-appointed Fed governor, fails (the case is currently being heard by the U.S. Supreme Court), Miran may need to step down to make way for a new nominee for Fed chairman. Analysts at LH Meyer, a research firm led by former Federal Reserve Governor Larry Meyer, said they had “long assumed” that Powell would remain on the Federal Reserve Board after stepping down as chairman as a buffer against Trump’s attempts to take control of the central bank. The analysts added that after Trump’s attempt to fire Cook, “Powell is probably now even more convinced of the necessity of this.” Furthermore, a dozen regional Fed presidents constitute the strongest voice against further rate cuts. Since September, the Fed has cut rates by 25 basis points twice. One regional Fed president voted against the second rate cut, and two other regional Fed presidents with policy voting rights this year have hinted that they might resist a third rate cut next week. The group of officials who will rotate voting rights on the Federal Open Market Committee next year also seem skeptical of further easing, given that inflation has now been above target for the fifth consecutive year and the labor market, while softening, has not collapsed. LH Meyer's team believes that assuming policymakers maintain their latest forecast of only 25 basis points of rate cuts in 2026, "the new Trump-appointed Fed chair might be able to push for a second rate cut in 2026… but that would be about it," unless the unemployment rate rises above 4.5% or inflation falls back to target faster than expected.
Kikyo
