What A Post-Powell Federal Reserve May Look Like Under Trump Favorite Kevin Hassett

His distinctly dovish leanings suggest deeper rate cuts ahead, unsettling bond investors and raising questions about policy credibility.

• Polls and prediction markets increasingly expect Kevin Hassett to be nominated as the next Fed chair.
• His policy tilt raises concerns about maintaining credibility and managing inflation amid shifting economic signals.
• Leadership uncertainty adds to market volatility at a time when valuations are elevated, and conditions remain fragile.

The Federal Reserve’s leadership transition looms large, potentially shaking up monetary policy and the economy amid ongoing uncertainty. Jerome Powell, the incumbent, could have remained in office, as there is no formal limit on consecutive four-year terms for the Federal Reserve chair.

As Powell’s monetary policy outlook diverged from that of President Donald Trump, the duo has had frosty relations since the latter’s inauguration this year. The Trump administration has long begun looking past “Too Late” Powell, a name the president disparagingly uses to refer to the Fed chair, and toward other government-friendly options, when his term expires on May 15. 

The name that is most frequently floated as a potential successor to Powell is Kevin Hassett, who currently serves as the director of the National Economic Council. Hassett also served during Trump’s first term as the Senior Advisor and Chairman of the Council of Economic Advisers.

Hassett’s Fortunes Swell In Polls 

Last week, Trump reportedly said at a Cabinet meeting that he considered about 10 candidates for the position, in consultation with Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick, and has now chosen one of them. Also at the meeting, he all but confirmed Hassett as the potential chair.

A Stocktwits poll, which concluded two days ago and received responses from 19,000 platform users, found that 53% of respondents believed Hassett would be Trump’s nominee. Incidentally 26% thought the president would retain Powell. Dovish Fed Governor Christopher Wallace and Kevin Warsh, who served on the Fed board between 2006 and 2011, received 13% and 8% of the votes, respectively.

Prediction market polls have also returned results in favor of Hassett, with Kalshi giving the odds at 77%. According to Polymarket, about 89% of bets are on no announcement by December, and 7.3% of bets are on Hassett being named.

What It Means For Monetary Policy

The Fed funds rate, currently at 3.75%-4%, is likely to decline further before a new chair assumes office. Another Fed meeting is around the corner, and odds now favor a 25-basis-point cut at the two-day Federal Open Market Committee (FOMC) meeting that kicks off on Tuesday. 

Fed Funds Rate

Source: St. Louis Fed<

Fed speeches since the October meeting, when the central bank lowered rates by another quarter point, have sent mixed messages.

Hassett is a longtime advocate for lower interest rates to support growth, and he has emphasized in recent interviews that the Fed should prioritize maximum employment and act decisively when growth slows. According to LPL Financial Chief Fixed Income strategist Lawrence Gillum, the language echoes the dovish tilt markets now price in.

Lloyd Financial Group Chief Investment Officer Colin Symons also expects an aggressively dovish Fed if Hassett goes on to win the nomination and be the chair.

Implications For Stocks, Bonds, Dollar

One of the factors driving the U.S. equity market higher, even amid all the uncertainties, is expectations that the central bank will continue to deliver rate cuts. The SPDR S&P 500 ETF (SPY), an exchange-traded fund that tracks the S&P 500 Index, is up a solid 18% this year. Mind you, this has come on top of the nearly 25% advance in 2024.

Source: Koyfin<

Symons sees a Hassett Fed as a perfect recipe for volatility. The strategist expects the dollar to potentially weaken and long-term bond yields to rise, which, in turn, will affect stock valuations that are already stretched to record highs.

“Ultimately, it's a tightrope of keeping confidence. Lower rates without the dollar going too low, too fast, while keeping long rates moderate and thus the stock market high. There's the possibility of a decent decline from all this but it's going to be a complicated dance. “

The strategist also noted that bond investors have already questioned the choice. “If nothing else, the potential for volatility is likely going up next year,” he added.

A dovish Fed will at least be a near-term positive for stocks, shifting market leadership away from megacap, heavily weighted stocks and toward interest-rate-sensitive sectors and small-caps.

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