Trump says the new head of the Fed will be revealed early next year, hinting at a preference for Hasset.

Author: Xiao Yanyan, Jin10 Data

U.S. President Trump stated during a cabinet meeting on Tuesday that he will announce his chosen candidate to succeed Powell as the chairman of the Federal Reserve “early next year”, further extending the months-long “draft” process, although he has indicated that he already knows who will lead the world's most important central bank.

Trump also mentioned at the meeting that the Treasury Secretary Besant, who is leading the selection process, does not want to serve as the chairman of the Federal Reserve, but did not reveal who he might be inclined towards.

Last Sunday, Trump told reporters that he knows who he plans to nominate as Powell's successor. Powell's term as chairman of the Federal Reserve will end next May. When asked whether the candidate is his chief economic advisor, Kevin Hassett, who is also a popular choice in the online gambling market, Trump did not respond. He reiterated on Tuesday that he has narrowed the list down to one person.

“I guess a potential Federal Reserve chair is also here. Can I say? Potential. He is a respected person, and I can tell you that. Thank you, Kevin.” Trump said at a White House event later on Tuesday.

Sixty-three-year-old Hassett served as the chairman of the White House Council of Economic Advisers during Trump's first term. He demonstrated his loyalty to the president by appearing regularly (though not weekly) on television programs such as CNBC and Fox News. In these appearances, he supported Trump's broad import tariff policies and called for lower interest rates.

As a fervent television viewer, Trump likely sees Hassett more often than most other candidates. Hassett's office is located in the West Wing of the White House, where he has direct access to the president and helps shape Trump's views on trade, economic issues, and monetary policy.

Advocates of Interest Rate Cuts

Other candidates who may succeed Powell include current Federal Reserve governors Bowman and Waller, former Federal Reserve governor Kevin Warsh, and BlackRock's Rick Rieder. Bessent stated that he has completed two rounds of interviews with each of the candidates mentioned above and plans to submit a narrowed-down final candidate list to Trump and other White House officials this month.

Trump does not hide his preference for supporting candidates who favor low interest rates, and Hassett and other candidates are precisely public advocates of low interest rates. This preference may be challenged by the current strong momentum in the economy, as this momentum has led many Federal Reserve officials to adopt a cautious stance towards implementing more accommodative policies.

As the selection process comes to a close, economists and financial markets are beginning to focus on what Trump's choice means for the outlook of monetary policy. The new Federal Reserve leader is likely to face a situation next year where the economy is regaining momentum, but struggling to create jobs, while inflation remains high.

“No matter who leads the Federal Reserve… monetary policy is determined by economic conditions,” said James Egelhof, chief economist for BNP Paribas in the U.S., during a conference call about the bank's 2026 outlook.

The outlook includes expectations: resilient growth and persistent inflation will allow for only one rate cut next year, provided that the Federal Reserve is expected to cut rates again at the meeting on December 9th to 10th. Subsequently, with the inflation rate stubbornly remaining at 3%, Trump's new Federal Reserve chair will keep borrowing costs stable. The Federal Reserve's inflation target is 2%.

“The data will indicate that, apart from the interest rate cuts we expect to implement, there is hardly a need for more aggressive cuts,” said Egelhoff.

If the economy indeed develops along this path, it could become an early test of the independence of the new Federal Reserve Chair, especially in relation to Trump's calls for ultra-low interest rates. If Hassett secures the position, it may test his conviction that supply-side policies can achieve above-trend growth without triggering inflation, a belief that most of his colleagues consider unlikely.

Judgments about the impact of artificial intelligence on trend growth, labor demand, and wages are likely to become a core debate topic for the Federal Reserve in the coming months and even years.

Resistance to Further Easing

The outlook for monetary policy also depends on a group of policymakers who may have differing opinions, and they will ultimately work with the next Federal Reserve Chair.

Powell may not necessarily have to completely leave the Federal Reserve after his term as chairman ends in May next year, and he has not yet indicated what his plans will be. Trump has long regretted nominating him as chairman at the end of 2017. Among the members of the Federal Reserve Board, three were appointed by former President Biden, while the other three were appointed by Trump.

The latest one among them—Stephen Miran, who is also an economic advisor to Trump, is the most supportive of significant interest rate cuts. If Powell does not resign from his position as a board member after his term as chair ends, or if Trump fails to remove Biden's appointee to the Federal Reserve, Lisa Cook (this case is currently being reviewed by the U.S. Supreme Court), then Miran may need to step aside to make room for the nominee for the new Federal Reserve Chair.

Analysts at LH Meyer, a research firm led by former Federal Reserve Governor Larry Meyer, stated that they have “long assumed” that Powell would remain on the Federal Reserve Board after stepping down as chairman, serving as a buffer against Trump's attempts to control the central bank. The analysts added that after Trump's attempt to fire Cook, “Powell may now be even more convinced of the necessity of this.”

In addition, there are more than a dozen regional Federal Reserve presidents who have formed the strongest opposition to further rate cuts. Since September, the Federal Reserve has cut rates twice by 25 basis points. One regional Federal Reserve president has already voted against the second rate cut, and two other regional Federal Reserve presidents with policy voting rights this year have also hinted that they may resist the third rate cut next week.

Next year, a new group of officials will rotate into voting positions on the Federal Open Market Committee, and they also seem skeptical about further easing, as the inflation rate has now been above the target for the fifth consecutive year, and while the job market is softening, it has not collapsed.

The LH Meyer team believes that if the latest forecast by policymakers of only a 25 basis point rate cut in 2026 holds, “the new Trump-appointed Federal Reserve Chair might be able to push for a second rate cut in 2026… but that would be it”, unless the unemployment rate rises above 4.5% or inflation falls back to target levels faster than expected.