Last week, President Donald Trump provided his most significant indication to date that he has selected a successor for Federal Reserve Chair Jerome Powell. Investor apprehensions are evident. Following an extended period of conjecture regarding the identities of the various candidates, Trump confirmed last week that he has identified the individual he intends to nominate for the most influential position in the US economy. Shortly thereafter, in a Cabinet meeting, Trump identified Kevin Hassett as “a potential Fed chair,” questioning, “Are we allowed to say that?” The 10-year Treasury yield increased by 11 basis points following a report on November 25 indicating that Hassett was the “frontrunner” for the central bank’s leadership position. Bond investors communicated to the Treasury Department earlier last month their concerns that Hassett might advocate for a significant reduction in borrowing costs to satisfy Trump, as reported. The report indicates that this sentiment was echoed in individual discussions the department conducted with executives from prominent banks, leading asset management firms, and other significant participants in the US debt market.
The current apprehension arises amidst a backdrop of policymakers grappling with divergent views on the appropriate course of action regarding interest rates. Concerns arise regarding Hassett, a longstanding ally of Trump, as there is apprehension that he may prioritize adherence to the president’s directives over maintaining the Federal Reserve’s autonomy in determining interest rates free from political influence — despite the fact that the Fed chair possesses merely one vote. Their concerns are significant as markets may react negatively, potentially compelling Trump to retract his nomination of Hassett, resulting in an awkward reversal. “Markets really act as a sanity check for policy and other major decisions,” stated Angelo Kourkafas. The selection of Trump’s nominee for the Federal Reserve chair was inherently complex due to the existing regulations governing eligibility for the position. Restructuring his senior economic advisory team would introduce an additional layer of intricacy. Fed Governor Lisa Cook’s position on the Board remains in flux as the judiciary assesses the legality of Trump’s potential dismissal of her. “The market is already attempting to assess the degree of dovishness or hawkishness that the next Fed chair may exhibit,” stated Tom Porcelli. “However, one cannot truly predict an individual’s behavior in a position until they are actively occupying that role.”
The Federal Reserve’s status as an independently funded agency allows it to make rate decisions devoid of political influence, which significantly contributes to investor confidence in the robustness of the US economy. Politicians globally frequently seek to stimulate the flow of inexpensive capital to bolster their electoral support. However, this poses the danger of overheating economies and elevating inflation — long-term risks that numerous politicians may overlook in favor of short-term electoral gains. Should investors waver in their confidence in the Federal Reserve, it is likely they will seek a greater yield in exchange for financing the government via US Treasuries or alternative financial instruments. The paradox lies in the fact that elevated bond yields would probably lead to an increase in long-term interest rates regardless. However, the composition of the Fed’s rate-setting committee may serve as a safeguard against political interference: The Fed chair holds just one vote among 12 and lacks the authority to unilaterally overturn the majority’s decisions. The role of the Fed chair is not the sole economic position of significance. The Federal Reserve chair is not the sole economic role in consideration. “A range of views and policy approaches are represented around the table, and then everyone gets one vote,” stated Bill English.
“There exists a committee for a specific purpose, and should the committee find itself at odds with the chair, it is conceivable that the chair could face a loss in a vote, an occurrence that has not transpired historically,” he stated. The Federal Reserve chair is not the sole economic role currently under consideration. A complex network of advisers surrounding Trump may be experiencing shifts in their roles or potentially occupying multiple positions concurrently. If Trump selects Hassett to head the central bank, he will need to identify an alternative candidate to direct the NEC, which is responsible for coordinating economic policy within the White House. Advisers to Trump have suggested the potential for Treasury Secretary Scott Bessent to head the NEC while concurrently serving as Treasury secretary, as reported. Last week, Trump reaffirmed his willingness to select Bessent as Fed chair, despite the Treasury secretary’s consistent preference to maintain his existing position. Trump must also take into account the Council of Economic Advisers. Stephen Miran serves as the chair of the CEA, currently on temporary leave to fulfill a term as a Fed governor in a unique arrangement. Since joining the Federal Reserve in September, Miran has pushed for substantial rate reductions, opposing the prevailing consensus that opted for a quarter-point decrease during both the September and October gatherings.
Miran’s term on the Fed concludes at the end of January; however, in response to inquiries from senators during his confirmation process, he indicated that he would not pledge to resign until a successor has been nominated and confirmed. Workers are engaged in painting an eagle statue at the Marriner S. Eccles Federal Reserve Board Building, which serves as the primary offices for the Board of Governors of the Federal Reserve System, on September 16, 2025, in Washington, DC. The selection of the Fed chair is constrained by regulations that stipulate the appointee must be drawn from the existing pool of Fed governors, and presently, there are no open positions on the Board. Powell’s leadership term concludes in May; however, he concurrently holds a governorship that extends until 2028. Powell has not disclosed his intentions regarding his continuation on the Board following the conclusion of his term as chair. Typically, Fed chairs conclude their tenure entirely at the end of their four-year term, should they not receive a reappointment. Trump might consider replacing Hassett with Miran, subsequently promoting him to chair in May; alternatively, he could bide his time, anticipating Powell’s potential resignation next year, thereby allowing both Miran and Hassett to hold positions at the Fed. In the latter scenario, Trump would then theoretically need to appoint replacements to head the NEC and CEA.
In a separate development, Governor Lisa Cook’s lawsuit contesting Trump’s effort to dismiss her based on unsubstantiated claims of mortgage fraud may influence the composition of the Federal Reserve’s influential Board. In August, Trump stated that he dismissed Cook, marking the first instance in the Federal Reserve’s over a century-long history where a president has sought to remove a sitting governor. Cook has taken legal action, and the Supreme Court is set to render a decision on the matter in the upcoming year. Should Cook lose her case and be replaced, Trump would have effectively influenced the composition of the majority of the Board at a moment when the political independence of the central bank is a contentious issue. “There is apprehension regarding the potential politicization of the Federal Reserve, which could lead to an unacceptably elevated inflation rate in the long run,” English stated. “The market may react negatively if a new chair is appointed and the committee, for various reasons, decides to reduce rates more than necessary.”