Econified

President Donald Trump has reportedly said that he knows who will be the next Chair of the Federal Reserve. Jerome Powell’s term as chair will end in May of 2026. While Jerome Powell could retain his position, it is unlikely that President Trump will nominate Jerome Powell for another term. Powell’s monetary policy decisions have been criticized by President Trump in the past. May will mark the end of Jerome Powell’s second term. He was nominated by both President Trump in 2018 and President Biden in 2022. It appears likely that President Trump will nominate the director of the National Economic Council, Kevin Hassett, to be the next Fed chair.

Why Does this Matter?

Other than running the Federal Reserve, the Chair of the Federal Reserve also has a lot of influence on monetary policies that impact the entire economy. Many people solely associate the chair with monetary decisions; however, the chair does not act alone. The chair is the head of the Federal Open Market Committee (FOMC). The FOMC meets eight times annually to set goals for the Federal Funds Rate. This rate influences the rest of the economy to raise or lower interest rates around that Federal Funds Rate. The FOMC has 12 voting members, and the chair only has one vote. This whole process of setting interest rates is lengthy and complicated, but the takeaway is these 12 voting members have the ability to raise and lower interest rates.

The Chair of the Federal Reserve is able to lead the discussions of the 12 voting members, and the chair also serves as the spokesperson for the FOMC. The chair is also the head of the Federal Reserve, which is a large government organization with approximately 23,000 employees spread across 12 Federal Reserve banks throughout the nation. The Federal Reserve can be thought of as the bank for banks. While this role is also incredibly important, the chair’s role on the FOMC is more impactful to monetary policy.

Who is Kevin Hassett

It is widely thought that President Trump is planning on nominating Kevin Hassett to be the new chair. Predication markets put the odds that he gets nominated at 70%. This is because Hassett works directly with the president and advises him on economic policies. It is likely that Hassett has a very similar economic philosophy to the president. Kevin Hassett’s economic beliefs are more closely aligned with Supply- Side economics. This is also referred to Trickle-Down Economics (read about economic philosophies here).

While this may seem like the president appointing someone who agrees with him to be the new chair, it is important to note that Hassett is qualified for the role. The only requirements to be the Chair of the Federal Reserve is to be nominated by the president and confirmed by the senate. However, there are other qualifications that Hassett possesses. Hassett has a PhD in Economics from the University of Pennsylvania. He also is currently serving as the director of National Economic Council (NEC). The NEC is part of the Executive Office of the President, and its primary role is to advise the president on U.S. and global economic policy. Jerome Powell had a law degree from Georgetown University and an undergraduate politics degree from Princeton. There is certainly an argument to be made that Hassett is far more qualified for the role than Jerome Powell.

What does this mean for monetary policy?

What is almost certainly going to happen if Hassett becomes the Chair of the Federal Reserve is that interest rates will be decreased. President Trump has made it clear that he is looking for sharper decreases to the interest rate. This is because lower interest rates make growth more achievable which makes the market appear better. However, there is a balancing act the Federal Reserve has to play. Lowering rates too drastically or keeping rates low too long will cause inflation. President Trump’s tariff policies will cause inflation, at least in the short-term, and lowering interest rates may compound the problem.

Kevin Hassett has been a strong proponent of Federal Reserve rate cuts. He has also supported President Trump’s import tariff policies. This will mean that the new chair is going to be very much aligned with the president’s economic goals. A major concern would be that the Federal Reserve will fold to the president’s wishes and not support well-informed economic policies.

While the chair will not be able to make economic decisions alone, there will be increased pressure for Hassett to lower interest rates. Kevin Hassett is an economist with a wealth of experience, so the economic polices he supports will be based on his view of economics. Once he is in the role, it is very hard for the president to remove him. This is likely why Jerome Powell is still the current chair. This means that there will be much less of an incentive for Hassett to be aligned with political policies once he becomes the chair.

He has not been nominated for the role yet, so there is still a chance that someone else is nominated. Kevin Hassett is by no means a bad nomination, in fact, he is incredibly qualified and well respected in economics. Some people fear that the Federal Reserve may be more politically influenced by this decision, but a PhD in Economics will know the difference between a smart economic decision and a political decision. Even if he does get nominated, the senate will still have to confirm him for the role. The senate does have a republican majority, but they will still get to question him to see if he is right for the role.