United States President Donald Trump has said he has decided to pick the next chairman of the Federal Reserve.
Although Trump has yet to confirm his nominee, one name stands out as the overwhelming favorite: Kevin Hassett, director of the White House’s National Economic Council.
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A prediction market poll on Wednesday put Hassett’s chance of the nomination at 86 percent, compared with 6 percent for former Fed governor Kevin Warsh and 4 percent for current Fed governor Michelle Bowman.
Why does it matter who leads the Federal Reserve?
As the central bank of the world’s largest economy, the Fed is the most important financial institution on the planet.
The Fed performs several important roles in the US economy, including setting monetary policy, supervising and regulating banks, and promoting the stability of the financial system by acting as a lender of last resort.
The most closely watched of these functions is monetary policy, which the Fed manages primarily by setting interest rates.
The Fed’s policymaking committee meets eight times a year to set the federal funds rate, the interest rate at which commercial banks lend to each other on a short-term basis.
The committee holds its final meeting on Tuesday and Wednesday next week for 2025, when it will agree on a 0.25 percent cut in the benchmark rate, currently set in a range of 3.75 percent to 4 percent.
The benchmark rate has far-reaching effects on the entire economy, as banks’ borrowing costs influence the interest rates charged to consumers for mortgages, car loans and other forms of credit.
Typically, the Fed, with its dual mandate of promoting employment and keeping prices stable, lowers interest rates when the economy is struggling and raises them when prices are rising too fast.
Cheap borrowing encourages businesses to invest and consumers to spend more, stimulating economic growth.
On the other hand, high borrowing costs act as a brake on economic activity, helping to reduce inflation.
Who is Hassett and what is his background?
Although Hassett is among the many names being discussed for the top job at the Fed, he stands out for his time spent in close proximity to Trump.
A career economist, Hassett was named Trump’s top coordinator on economic policy, serving in his first administration as head of the Council of Economic Advisers, an older, more research-oriented body than the National Economic Council.
After leaving the first Trump administration in 2019, Hassett briefly returned to the White House to serve as an adviser on the COVID-19 pandemic.
Crucially, Hassett has signaled his support for a faster cut in interest rates — something Trump has been angrily demanding for months from the current Fed chair, Jerome Powell.
Trump has insisted that his tariffs are overzealous over concerns that they could lead to a return to high inflation, and has suggested that the benchmark rate be kept as low as 1 percent.
In an interview with Fox News last month, Hassett said that if he were in Powell’s shoes, he would “cut the rate right now.”
Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics, said Hassett would likely push for faster rate cuts in this role, though not at the pace Trump would prefer.
“I think Hassett Fed policy will try to lower interest rates, but probably not all the way to the 1 percent level that President Trump is calling for,” Gagnon told Al Jazeera.
“He will probably argue that the administration’s deregulation agenda and the AI boom give the economy more room to grow without causing inflation.”
Before and during his tenure in the Trump White House, Hassett was an economist at the American Enterprise Institute, a conservative think tank, where he published extensively on tax and trade policy.
Hassett also served as a financial advisor to the presidential campaigns of John McCain, George W. Bush, and Mitt Romney.
Before joining the world of politics, the economist worked at Columbia Business School and the Fed’s Research and Statistics Department.
Why is Hassett’s potential nomination a source of controversy?
Hassett’s reputation as a Trump loyalist has raised concerns in some quarters about the Fed’s independence.
The central bank’s ability to make decisions free from political influence or considerations is widely seen as critical to confidence in the US economy.
But Trump’s repeated verbal attacks on Powell, whose term ends in May, and his Press to remove Lisa CookOne of six other Fed governors on unsubstantiated claims of mortgage fraud.
“I think the concerns about the Fed’s independence are very real and valid,” 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 was closer to any of the previous Fed chairs than President Trump was to his nominees. There’s also contextual background: the firing of Lisa Cook, efforts to end Jerome Powell’s term early, and Kevin Hassett’s own endorsement of those efforts.”
Still, Hassett won’t have free rein to run the Fed if nominated and then confirmed by the US Senate.
The central bank’s policy committee has 12 members — including four nominees of former Democratic President Joe Biden — and makes decisions by majority vote.
David Wilcox, an economist at Bloomberg Economics and the Peterson Institute for International Economics, said whoever leads the Fed will face an equally difficult task of supporting jobs without high inflation.
“On the one hand, the jobs market appears to be weakening, albeit only slowly. On the other hand, inflation is very high – significantly above the Fed’s 2 percent 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 pretend that the choice is clear,” Wilcox added.
“Any move toward a dramatically easier stance on policy risks prolonging inflation. We’ve just been through the worst inflationary struggle in 40 years, and Americans have spoken loud and clear about how strongly they dislike inflation.”