Is he the next Fed chairman? Decoding the power game that led to Hassett's victory

Author: Xiao Yanyan, Jin10 Data

On the surface, the selection process for the new Federal Reserve Chairman is still underway. A few final candidates plan to begin interviews with Vice President Vance and senior White House staff this week.

But in reality, this process seems to be nearing its end, and Trump appears to lean towards his longtime advisor Kevin Hassett. If Hassett ultimately receives the nomination, it will be because he meets Trump's two key criteria: loyalty and credibility in the market.

“I know who I'm going to choose,” Trump said to reporters last Sunday. When asked if the candidate was Hassert, Trump smiled but said no more.

Since Labor Day, Treasury Secretary Mnuchin has been conducting an orderly selection process, narrowing the initial pool of 11 candidates down to 5: current White House National Economic Council Director Kevin Hassett, former Federal Reserve Governor Kevin Warsh, current Federal Reserve Governors Christopher Waller and Michelle Bowman, and BlackRock executive Rick Rieder.

This summer, Walsh was once seen alongside Hasset as a frontrunner. However, those who have spoken with Walsh recently get the impression that he no longer sees himself in that light.

Hasett and Walsh did not respond to requests for comment.

White House spokesman Kush Desai stated, “Discussions about Federal Reserve nominations are speculation before President Trump officially announces.”

According to informed sources, Hassett has expressed to the White House and other government officials that he is eager to obtain this position and that he is the best candidate.

Hassett's close relationship with Trump has paid off, as other competitors did not have the same opportunity to prove their loyalty to Trump. He served as the Chairman of the White House Council of Economic Advisers from 2017 to 2019, and then briefly returned as a senior advisor after the outbreak of the COVID-19 pandemic in 2020. When Trump returned to the White House in January this year, he took on the role of Director of the National Economic Council.

Last week, Hassett passed another test: long-term interest rates fell after a report named him as a frontrunner for the Federal Reserve chair. On Sunday, Hassett used this as evidence that he could meet Trump's demand for lower rates without sacrificing credibility on inflation issues.

“I believe the American people can expect President Trump to choose someone who can help them get cheaper auto loans and more easily obtain mortgages at lower interest rates. This is what we saw in the market's reaction to the rumors about me,” Hassett said on CBS.

Selecting the successor to Powell, who will step down in May next year, can be said to be the most influential personnel decision of Trump's second term. It has now turned into a public “performance”: a months-long campaign in the public eye, where candidates compete for attention on television shows while taking breaks between several interviews with Besant.

The final candidates have met with Bencic. According to sources, they will begin meeting with Vance and other White House staff this week, followed by a meeting with Trump. Bencic has stated that Trump may announce his nominee before Christmas.

Although Trump has stated that he has made a decision and all signs point to Hassett as his top choice, those following the process have pointed out that he may still change his mind.

According to sources familiar with the matter, just last week, Trump was discussing with allies who should be the next chairman of the Federal Reserve. This person stated that Trump had urged allies to articulate their reasons for supporting Hassett or Warsh.

One person said that some people told Trump that Walsh did not have as close a professional relationship with him as Hassett, while also pointing out that if he chose Hassett, he would lose a capable aide in the position of Director of the National Economic Council.

Another person who has discussed this decision with Trump stated that Bessent is currently the only potential candidate who could obstruct Hassett's “coronation” as the Chairman of the Federal Reserve. Bessent has privately and publicly ruled out the possibility of running for the position. However, according to another informed source, Trump told allies last week that he greatly appreciates Bessent and still considers him a potential candidate for Chairman of the Federal Reserve.

In addition to his loyalty to Trump, Hassett's candidacy also benefits from his status as a PhD economist, who has published works and previously served as a staff economist at the Federal Reserve. He has solid conservative credentials and was confirmed as the chairman of the Council of Economic Advisers in the Senate in 2017 with broad bipartisan support.

Nonetheless, Hassett's candidacy has raised concerns among some former colleagues, who question whether he possesses the calm demeanor required for the position and the courage to withstand pressure from Trump when necessary. Some individuals who had previously helped him in his bid for the nomination as chairman of the Council of Economic Advisers later expressed discomfort over his public criticism of the Federal Reserve's actions.

The succession process for the Federal Reserve Chair is evolving into the most unusual one in decades. Since Alan Greenspan took over from Paul Volcker in 1987, every new Federal Reserve Chair has committed to maintaining policy continuity to promote market stability. But this time, candidates have to distance themselves from Powell's policies. Eight years ago, Trump chose Powell, a sitting Fed governor, as Chair, but he quickly became dissatisfied with his choice.

Despite having firmly defended the importance of central bank independence during Trump's first term, Hasset has joined Trump this year in sharply criticizing the Federal Reserve and Powell. This summer and last month, he has repeatedly accused the Fed of having partisan bias for not cutting rates more aggressively, a charge that has been almost universally rebutted by all policymakers at the central bank.

Powell's willingness to resist Trump's demands has enhanced his standing among economists and investors who value the independence of the Federal Reserve. Meanwhile, Hassett spent months publicly criticizing his future colleagues during his campaign for the position, and once in office, he will have to prove his credibility to those colleagues and the market, all while maintaining the loyalty that earned him the position.

The Federal Reserve has cut interest rates at the last two meetings, but some officials are cautious about further cuts (including at next week's meeting) as they need to weigh the competing concerns of a weak labor market against more persistent inflation.

The above content is from Nick Timiraos, a renowned journalist from The Wall Street Journal, known as the “Fed's megaphone”