President Donald Trump has signaled a significant shift in his search for the next Federal Reserve chair, suggesting his top economic advisor Kevin Hassett may remain at the White House rather than lead the central bank. The remarks, delivered during a Friday event, have reshuffled expectations and strengthened the candidacy of former Fed governor Kevin Warsh.
During a White House gathering, Trump addressed Hassett directly after spotting him in the audience. "I actually want to keep you where you are, if you want to know the truth," the president stated, adding praise for Hassett's recent television appearances. While not an absolute declaration, the comment represents the clearest indication yet that Hassett may not be destined for the Fed's top position.
This development has dramatically altered the landscape of what has been an extensive and closely watched selection process. The role of Federal Reserve chair ranks among the most influential financial positions globally, with profound implications for monetary policy, interest rates, and economic stability. Trump's preference for keeping Hassett in his current role as director of the National Economic Council has consequently elevated other contenders, particularly Warsh.
Until this point, Hassett had been widely regarded as the frontrunner to replace Jerome Powell, whose term expires on May 15. His close working relationship with Trump dating back to the president's first term positioned him as a natural choice. Trump himself had previously referred to Hassett as a "potential Fed chair," further cementing market expectations around his nomination.
However, the political calculus appears to have shifted. The Justice Department's unprecedented subpoenas of the Federal Reserve last week have injected significant controversy into the selection process. In an unusually direct video statement, Powell characterized the subpoenas as retaliation for the central bank's refusal to cut interest rates as aggressively as the administration desired. The criminal investigation, marking the first time a sitting Fed chair has faced such scrutiny, triggered immediate bipartisan pushback on Capitol Hill.
Numerous Republican senators quickly dismissed the notion that Powell could have committed any crime, rallying to the defense of the Fed's institutional independence. The subpoenas specifically concerned testimony Powell delivered in June regarding a $2.5 billion building renovation project, but the broader context suggests a tension between the White House's desire for looser monetary policy and the Fed's operational autonomy.
This backlash has heightened Senate concerns about the administration's respect for Fed independence, potentially complicating confirmation for any candidate perceived as too closely aligned with the president. Analysts suggest this dynamic may actually work against Hassett, whose proximity to Trump could become a liability in Senate confirmation hearings.
"The brouhaha over the subpoenas is making it harder to confirm Hassett, who is distinctively close to the president," noted Krishna Guha, an analyst at investment bank Evercore ISI, in a client communication. "Warsh is trusted by Senate Republicans and would be much easier to confirm."
Indeed, Warsh's prospects have brightened considerably. As a former Fed governor, he brings institutional credibility and established relationships within the Senate that could smooth his path to confirmation. His experience at the central bank during the financial crisis era provides him with a depth of technical expertise that could reassure lawmakers concerned about maintaining Fed independence.
Yet Warsh's policy orientation presents a different set of market implications. He has historically been characterized as a monetary "hawk"—an advocate for higher interest rates to preempt inflationary pressures. This stands in contrast to "doves" who prioritize lower borrowing costs to stimulate employment and economic growth. The distinction is crucial, as it shapes expectations about future monetary policy direction.
Financial markets responded immediately to the shifting odds. The yield on the 10-year Treasury note climbed to just above 4.2% on Friday, up from approximately 4.17% the previous day. This upward movement in bond yields likely reflects investor assessment that a Warsh chairmanship would maintain a more cautious approach to rate cuts, preserving higher rates for longer than might occur under a Hassett-led Fed.
The market reaction underscores how sensitive investors are to the perceived policy leanings of potential Fed leadership. Even subtle shifts in the probability of different candidates can move billions in bond valuations as traders reposition based on anticipated monetary policy trajectories.
The broader context reveals a complex interplay between political considerations and economic policy. Trump's public break with Powell stemmed originally from the Fed's 2018 interest rate increases, which the president viewed as undermining his economic agenda. That history has made the current selection process particularly charged, with the administration seemingly seeking a chair more aligned with its preferences for accommodative monetary policy.
Paradoxically, the political controversy surrounding the subpoenas may push Trump toward a candidate who is actually less dovish than his presumed preference. Senate confirmation realities could force a compromise selection that satisfies institutional defenders while still representing a change from Powell's approach.
Warsh's hawkish reputation, while potentially at odds with the administration's stated desires, might actually serve as a strategic asset. His credibility with Senate Republicans could make him confirmable, while his policy views might evolve in response to economic conditions and political pressures. Moreover, a chair with anti-inflation credentials could provide political cover for rate cuts if economic data warranted them.
The situation remains fluid, with Trump's comments on Hassett representing guidance rather than a final decision. The president has historically valued personal loyalty and television performance in his appointments, factors that had favored Hassett. But the intensifying political dynamics around Fed independence have introduced new variables that may ultimately prove decisive.
As May 15 approaches, markets will continue parsing every statement and signal from the White House for clues about the next Fed chair. The choice will shape not just the direction of monetary policy but also the broader relationship between the central bank and elected officials—a relationship fundamental to American economic governance.
For now, the balance appears to be tipping toward Warsh, with implications for interest rates, bond markets, and the delicate institutional balance between political authority and central bank independence. The yield curve's movement Friday may be just the first market adjustment as investors recalibrate expectations for the post-Powell Federal Reserve.