Trump Signals Hassett Stays at White House, Reshaping Fed Race
President wants NEC director in current role, boosting Kevin Warsh's odds. Treasury yields rise as markets price hawkish Fed chair outcome.
The Federal Reserve chair race just got more complicated.
President Trump said Friday he wants Kevin Hassett to remain as National Economic Council director rather than become the next Fed chair. The offhand remark at a White House event sent Treasury yields higher and reshuffled the betting odds for who replaces Jerome Powell when his term expires in May.
"I actually want to keep you where you are, if you want to know the truth," Trump said when he spotted Hassett in the audience.
The 10-year Treasury yield climbed to 4.2% from 4.17% Thursday. That move reflects bond traders pricing in a more hawkish Fed under the likely alternative: former Fed governor Kevin Warsh.
Why Warsh Matters
Warsh served on the Fed board from 2006 to 2011 and has been vocally critical of the central bank's pandemic-era policy. He's argued the Fed was too slow to raise rates in 2021-2022 and too quick to pivot dovish in 2024.
That's a stark contrast to Hassett, who favors aggressive rate cuts. Hassett has publicly backed Fed Governor Stephen Miran's call for 150 basis points of cuts this year—a position that would put him at odds with most FOMC members who see maybe one or two reductions.
The math is straightforward: Warsh at the helm likely means fewer rate cuts. Bond markets react instantly to that kind of shift in expectations.
The Confirmation Reality
Trump's preference for keeping Hassett at the NEC may also reflect political calculation.
The DOJ investigation into Powell has created an awkward situation for confirming any Fed chair nominee closely tied to the administration. Senate Republicans have pushed back on the investigation, with several questioning whether Powell committed any crime.
"Warsh is trusted by Senate Republicans and would be much easier to confirm," Evercore ISI analyst Krishna Guha noted Friday. "The subpoenas controversy is making it harder to confirm Hassett, who is distinctively close to the president."
Warsh served in the George W. Bush administration and has maintained relationships across the Republican establishment. His nomination would face less skepticism than elevating a current White House staffer to lead monetary policy.
Powell's Final Months
Powell's term as Fed chair expires May 15. He's made clear he intends to serve it out despite the DOJ investigation and White House pressure.
The Fed enters its blackout period Saturday ahead of the January 27-28 FOMC meeting. Markets see essentially zero chance of a rate cut—the CME FedWatch Tool shows just 2.8% probability. Wall Street doesn't expect the next reduction until June at the earliest.
That timeline means whoever replaces Powell inherits a Fed that's already on hold. The real question is how aggressively a new chair would push for cuts once the window opens.
Under Warsh, the answer is probably "not very." He's been consistent in arguing that inflation remains sticky and the neutral rate may be higher than current estimates suggest. That framework implies patience rather than preemptive easing.
What the Bond Market Says
The yield curve steepening on Trump's comments tells the story. When traders expect a hawkish Fed chair, they demand more compensation for holding long-dated bonds. That's exactly what happened Friday.
For equity investors, the calculus is mixed. Higher rates pressure valuations, particularly for growth stocks that discount future earnings at higher rates. But a Fed chair focused on price stability could also provide more predictable policy—something markets have craved since the unprecedented volatility of recent years.
Regional bank stocks, which we've tracked through the recent earnings cycle, would likely welcome a Warsh nomination. These lenders benefit when long-term rates stay elevated relative to short-term rates, as it widens their net interest margins.
The uncertainty won't resolve quickly. Trump has shown he likes to keep options open, and Friday's comments—while significant—weren't a definitive announcement. The Fed chair race remains fluid with four months until Powell's exit.
But the market has rendered its preliminary verdict: Warsh is now the frontrunner, and that means rates stay higher for longer.