Is Bessent Still Expected to Take Over?

Written by: Long Yue

Source: Wall Street Journal

The selection of the next chair of the Federal Reserve is entering its final stages. Although White House National Economic Council Director Hassett is currently in the lead, Trump's decision to initiate the final round of interviews indicates that the final candidate is far from being "set in stone."

Today, according to the Financial Times citing three senior U.S. government officials, Trump and Treasury Secretary Bessent plan to meet with former Federal Reserve Governor Warsh this Wednesday. This move marks the official start of the final round of interviews to find a successor to current chair Powell.

This latest development suggests that Hassett's nomination is not a sure thing. In addition to Hassett and Warsh, the final candidate list also includes other contenders from Federal Reserve Governors Waller, Bowman, and BlackRock executive Rick Reed. The final decision is expected to be announced in early January next year.

The core impact of this personnel change lies in the future direction of monetary policy. Some Wall Street investors have expressed concerns that Hassett, who has close ties to the president, may aggressively cut interest rates, potentially posing risks to the market.

Hassett Leads, but Term May Be Uncertain

In recent weeks, Hassett has become a popular candidate to succeed Powell. However, Trump administration officials have floated the idea of having Hassett serve a shorter term as Federal Reserve chair than the usual term. The standard term for a Federal Reserve chair is four years, with the possibility of reappointment.

Additionally, two informed sources stated that Hassett himself had suggested to Bessent that he take over Powell's seat on the Federal Reserve Board, which has a term ending in January 2028. This flexible arrangement leaves room for future personnel planning.

Bessent Still Has a Chance to Take Over the Federal Reserve

Treasury Secretary Bessent plays a key role in this selection process. According to officials, he submitted a list of four names to the White House, which includes both Hassett and Warsh. Although Trump has repeatedly expressed a desire for Bessent to serve as Federal Reserve chair, Bessent himself has stated he has no intention of taking on that role.

However, if Hassett's term is shortened, it could pave the way for Bessent to take over the Federal Reserve later in Trump's second term. This potential arrangement suggests there may be longer-term strategic considerations behind the current selection process.

Market Concerns and Hassett's Response

Hassett's leading position has raised concerns among some bond investors. Reports indicate that these investors have expressed to the Treasury their worries that Hassett may aggressively cut interest rates. They believe that if such actions lead to persistently high inflation, it could shake the U.S. Treasury market, which is valued at up to $30 trillion.

To alleviate market concerns, Hassett has recently attempted to emphasize the importance of central bank independence. At an event on Tuesday, he stated that while he believes there is still room for further rate cuts, the "most important job" of the Federal Reserve chair is to "focus on economic data and avoid getting involved in politics."

The entire selection process is occurring against the backdrop of Trump's long-standing criticism of current chair Powell. Over the past year, Trump has consistently attacked Powell for not lowering borrowing costs more quickly and significantly. The market widely expects the Federal Reserve to announce a 25 basis point rate cut this Wednesday, bringing the target range for the federal funds rate down to a three-year low of 3.5% to 3.75%.

Even so, Trump continues to publicly call for U.S. borrowing costs to be lowered to 1%. For any new chair, balancing the president's expectations with maintaining central bank independence will be a significant challenge.

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