Trump Signals Preference for Hassett to Stay Put, Altering Fed Chair Race
President Donald Trump made a surprising statement on Friday, expressing his desire to retain top economic adviser Kevin Hassett at the White House. This move potentially sidelines Hassett from consideration to replace Jerome Powell as chair of the Federal Reserve.
"I actually want to keep you where you are, if you want to know the truth," Trump declared during a White House event. He spotted Hassett, who serves as director of the National Economic Council, in the audience. Trump added, "I just want to thank you, you were fantastic on television the other day."
Comments Upend Expectations for Powerful Financial Position
Trump's remarks, while not entirely definitive, have disrupted expectations surrounding the White House's extensive search for a new Fed chair. This position ranks among the most powerful financial roles globally. The president's comments have notably enhanced the prospects for Kevin Warsh, a former Fed governor already considered a top contender.
Hassett had generally emerged as the front-runner to succeed Powell, largely due to his longstanding work for Trump since the president's first term. Last month, Trump himself referred to Hassett as a "potential Fed chair." Powell's term as chair concludes on May 15, though he could unusually remain on the board as a governor afterward.
Background Tensions and Subpoena Controversy Influence Dynamics
Trump appointed Powell in 2018 but quickly grew dissatisfied with him after the Fed raised its key interest rate that year. The candidacy of Kevin Warsh received a further boost from recent Justice Department subpoenas targeting the Federal Reserve. Powell revealed these subpoenas on Sunday through an unusually direct video statement.
The Fed chair asserted that the subpoenas essentially punished the central bank for refusing to lower interest rates as aggressively as Trump desired. This criminal investigation marks a first for a sitting Fed chair and sparked immediate pushback on Capitol Hill. Many Republican senators dismissed the notion that Powell could have committed any crime.
The subpoenas relate to testimony Powell delivered last June before the Senate Banking Committee. His testimony touched on a $2.5 billion building renovation project. Analysts note that the backlash has intensified concerns in the Senate that the Trump administration aims to undermine the Fed's independence from day-to-day politics.
Political Fallout May Reduce Hassett's Confirmation Chances
This political turmoil may diminish Hassett's prospects. Krishna Guha, an analyst at investment bank Evercore ISI, explained in a client note that the subpoena brouhaha makes it harder to confirm Hassett, who maintains distinctively close ties to the president. Guha wrote, "Warsh is trusted by Senate Republicans and would be much easier to confirm."
Historically, Warsh is known as a "hawk," traditionally supporting higher interest rates to ward off inflation. This contrasts with a "dove," who prefers lower borrowing costs to spur hiring and economic growth. Financial markets reflected these shifting dynamics on Friday.
The yield on the 10-year Treasury note rose to just above 4.2%, up from about 4.17% on Thursday. This increase likely signals a perception that Warsh's chances have improved. Consequently, the Fed under a Warsh chairmanship would be less likely over time to cut interest rates compared to a scenario with Hassett at the helm.
