US President Donald Trump said he has decided on the next chairman of the Federal Reserve System.
President Trump has not yet confirmed his nominee, but Kevin Hassett, a member of the White House National Economic Council, has been named as the overwhelming favorite.
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Prediction market Calci on Wednesday gave Hassett an 86% chance of being nominated, compared with 6% for former Fed director Kevin Warsh and 4% for current Fed director Michelle Bowman.
Why does it matter who leads the Federal Reserve?
As the central bank of the world’s largest economy, the Federal Reserve is arguably the most important financial institution on the planet.
The Federal Reserve plays several important roles in the U.S. economy, including setting monetary policy, supervising and regulating banks, and promoting stability in the financial system by serving as the lender of last resort.
The most notable of these functions is monetary policy, which the Fed primarily administers by setting interest rates.
The Federal Reserve’s policy-making committee meets eight times a year to set the federal funds rate, the target interest rate at which commercial banks lend to each other on a short-term basis.
The committee is scheduled to hold its final meeting of 2025 next Tuesday and Wednesday, when it is widely expected to agree to cut the benchmark interest rate, currently set in the 3.75% to 4% range, by 0.25%.
Base interest rates have far-reaching effects across the economy, as banks’ borrowing costs influence the interest rates they charge customers for mortgages, car loans, and other forms of credit.
The Fed, which typically has a dual mission of promoting employment and keeping prices stable, lowers interest rates when the economy is weak and raises them when prices are rising too quickly.
Cheaper borrowing encourages business investment, increases consumer spending, and stimulates economic growth.
On the other hand, rising borrowing costs act as a brake on economic activity and help curb inflation.
Who is Hassett and what is his background?
Hassett is one of several people vying for the Fed’s top spot, but he is isolated given the amount of time he has spent close to President Trump.
Mr. Hassett, an economist by trade, was appointed as President Trump’s chief coordinator of economic policy after serving in his first administration as chairman of the Council of Economic Advisers, an older and more research-oriented agency than the National Economic Council.
After leaving the first Trump administration in 2019, Hassett briefly returned to the White House to serve as an advisor on the coronavirus pandemic.
Importantly, Hassett expressed support for accelerating rate cuts. This is something Mr. Trump has been angrily demanding from current Fed Chairman Jerome Powell for months, to little effect.
President Trump has argued that fears that tariffs could lead to a return to high inflation are overblown and suggested the benchmark interest rate should be set as low as 1%.
Hassett said in an interview with Fox News last month that if he were in Powell’s position, “I would cut rates right now.”
Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics, said Hassett is likely to push for faster rate cuts in that role, although perhaps not at the pace Trump would like.
“I think Mr. Hassett is likely to try to lower Fed rates, but probably not to the 1% level that President Trump is calling for,” Gagnon told Al Jazeera.
“He will likely argue that the administration’s deregulatory policies and AI boom are giving the economy room to grow without causing inflation.”
Before and during his time in the Trump White House, Mr. Hassett was an economist at the American Enterprise Institute, a conservative think tank, and published extensively on tax and trade policy.
Mr. Hassett also served as an economic advisor to the presidential campaigns of John McCain, George W. Bush, and Mitt Romney.
The economist worked at Columbia Business School and the Federal Reserve’s research and statistics division before entering politics.
Why is Hassett’s nomination so controversial?
Hassett has a reputation as a Trump supporter, raising some concerns about the Fed’s independence.
The ability of the central bank to make decisions free of political influence or considerations is widely considered critical to confidence in the U.S. economy.
But those long-held hopes have already come under scrutiny after Trump’s repeated abuse of Chairman Powell, whose term ends in May, and his push to fire Lisa Cook, one of the Fed’s other six board members, over unproven claims of mortgage fraud.
“I think the concerns about the Fed’s independence are very real and legitimate,” Anastasia Fedik, assistant professor of finance at the Haas School of Business at the University of California, Berkeley, told Al Jazeera.
“It’s not just that Kevin Hassett is closer to President Trump than previous Fed chairs have been to presidential candidates. There are also circumstantial factors, including the firing of Lisa Cook, the attempts to end Jerome Powell’s term early, and Kevin Hassett’s own approval of those efforts.”
Still, if Hassett is nominated and then confirmed by the U.S. Senate, he won’t have free rein to control the Fed.
The central bank’s policy committee is made up of 12 members, including four nominees of former Democratic President Joe Biden, and makes decisions by majority vote.
Whoever leads the Fed next will face the same difficult challenge of supporting jobs without triggering higher inflation, said David Wilcox, an economist at Bloomberg Economics and the Peterson Institute for International Economics.
“On the one hand, the job market appears to be weakening, albeit modestly. On the other hand, inflation remains too high, significantly above the Fed’s 2% target,” Wilcox told Al Jazeera.
“There is plenty of room for reasonable people to disagree about how best to balance these competing considerations against each other, but no one should act as if the choice is obvious,” Wilcox added.
“Any move toward dramatically easing policy risks pushing up inflation for a long time. We just experienced the worst inflation in 40 years, and Americans have made it loud and clear how much they hate inflation.”
