Investors Alarmed by Prospect of Hassett as Next Fed Chair
The question of who will lead the Federal Reserve in 2026 has already begun unsettling parts of the U.S. bond market.
- Traders fear Kevin Hassett would steer monetary policy to align with President Trump’s preferences.
- Market participants privately favor candidates like Rick Rieder or Christopher Waller.
- Treasury Secretary Bessent proposes new residency rules for regional Fed presidents.
According to people familiar with recent Treasury consultations, investors grew uneasy after hearing that Kevin Hassett, currently heading the National Economic Council, is being discussed as a potential nominee.
Rather than the usual quiet speculation surrounding Fed transitions, this round has seen unusually blunt feedback. Several major institutions warned the Treasury that Hassett’s close alignment with President Donald Trump could push the central bank toward politically motivated rate cuts, undermining confidence in its independence.
Investors Point to Other Names They Trust More
During meetings held in November between officials, banks, and major asset managers, many participants reportedly offered alternative suggestions. BlackRock’s Rick Rieder and current Fed governor Christopher Waller were among the names most frequently mentioned. Their appeal comes from a belief that both would maintain a more predictable and less politicized policy path.
Some economists framed the issue in personal rather than institutional terms. Analyst Claudia Sahm said the outcome would depend on “which version of Kevin Hassett shows up,” hinting at an unpredictable track record. Portfolio manager John Stopford delivered a harsher verdict, saying markets already view Hassett as too close to Trump, a perception he believes could damage the Fed’s credibility the moment the appointment is announced.
Bessent Pushes Structural Changes for Regional Fed Banks
While the debate over the next Fed chair heats up, Treasury Secretary Scott Bessent introduced another idea that could reshape the central bank’s structure. Speaking at the New York Times DealBook Summit, he said that the presidents of the twelve regional Federal Reserve Banks should have spent at least three years living in the districts they oversee.
Under Bessent’s plan, candidates failing to meet the residency threshold would be vetoed by the Fed Board of Governors and the administration. He argued that several current regional presidents were selected from outside their districts, a trend he believes weakens the original mission of representing local economic conditions within the broader Federal Reserve System.
A Growing Debate Over the Fed’s Future Direction
Between rumors of a politically charged chair nomination and proposals to reshape how regional presidents are chosen, the institution’s long-standing guardrails appear to be entering a period of stress. As Trump prepares to make his 2026 pick, markets are signaling that the credibility of the Federal Reserve — and not just its policy decisions — will be tested in the months ahead.
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