Donald Trump's recent hints about his pick for the next Federal Reserve chair have sent Kevin Hassett's odds soaring in prediction markets, signaling a potential shift in monetary policy. Hassett, a former White House economic advisor, has emerged as the frontrunner to succeed Jerome Powell when his term expires in May 2026.
Trump's remarks, coupled with Hassett's public willingness to serve, have fueled speculation that an announcement could come before Christmas. Speaking on Fox News, Hassett stated he would be "happy to serve" if chosen, further solidifying his position in the eyes of the market. Shortly after, President Trump told reporters on Air Force One that he had made up his mind regarding his pick to lead the Fed.
The prediction market Kalshi, for example, now places an 82% probability on Hassett becoming the next Fed chair. Polymarket data is slightly less optimistic, indicating a 58% probability. These shifts reflect a growing expectation that Trump intends to reshape the Fed with someone aligned with his economic views.
Hassett is perceived as holding a dovish stance on monetary policy, which aligns with Trump's long-held belief that interest rates should be lower. This contrasts with the current expectations of a gradual easing cycle under Powell's leadership. Markets are already pricing in an 87.6% chance of a rate cut in December, reflecting the anticipation of a more aggressive approach to monetary policy should Hassett be appointed.
The market's response to Hassett's potential nomination has been notable. Treasury yields have decreased, and the dollar has softened, indicating investors are anticipating a shift towards lower interest rates. Following Hassett's comments, interest rates declined, and the Treasury Department had "one of its best treasury auctions ever". Some analysts believe Hassett's emphasis on the market's positive reaction is a deliberate attempt to counter concerns that he might be too politically influenced or unable to unify the Fed's rate-setting committee.
While Hassett's potential appointment has excited those who believe in pro-growth, rate-cutting policies, it has also raised concerns about the Fed's independence. Some experts caution against political pressure influencing monetary policy decisions, stressing the importance of data-driven decisions. Others point out that while Hassett is seen as a Trump ally, his bipartisan confirmation history during his 2017 appointment to the Council of Economic Advisers could work in his favor.
With Treasury Secretary Bessent reportedly aiming to announce the pick by December 25th, the financial world is watching closely. Whether Hassett can successfully push for aggressive rate cuts will depend on the FOMC's composition and incoming economic data.
