Recent/upcoming developments… A variety of developments have occurred that suggest President Trump is preparing to nominate NEC Director Hassett to a seat on the Fed Board and as Chair.  Some market participants have reportedly expressed concern to Treasury Secretary Bessent that Hassett would be too willing to cut rates aggressively to please Trump.  However, a number of members of the Senate Banking Committee (SBC), which will be responsible for voting on Trump’s nominee, such as Sens. Tillis (R-NC) and Rounds (R-SD), who have previously expressed concern about Fed independence, signaled strong support for Hassett.  Meanwhile, Bessent for the first time explicitly indicated that he envisions making changes to the process for selecting/retaining the presidents of the Fed’s regional banks that would give the President greater control.

* In addition to unattributed press reports, Trump has called Hassett a “potential Fed chair” and “respected person.”  In addition, reports indicate that the administration has ceased interviews for nominees, and other reports suggest there is some consideration for Bessent absorbing Hassett’s role as NEC Director.  The explicit reaction from SBC members to Hassett also suggests he’s likely to be nominated.

* Sen. Tillis has been one of the most outspoken members of the SBC on the issue of Fed independence and expressed initial reservations about supporting Steven Miran for a board seat without him resigning from the White House CEA (though he eventually did vote to confirm Miran).  When questioned about Hassett, he said, “I like him” and as long as he leaves his position at the White House, “I think he’d be absolutely independent.”  Other Republicans on the SBC such as Sens. Rounds (R-SD) and Britt (R-AL) also made positive comments about Hassett in recent days, as did even a Democratic member of the SBC (i.e., Sen. Warner (D-VA)).

* There has been speculation for some time that the White House and Bessent seek to assert more control over the Fed’s regional bank presidents, which would be consequential since they rotate through as members of the rate-setting FOMC.  Bessent explicitly signaled that the administration seeks to assert this control by noting that “the chair and the board have the final say on who … the regional bank boards can select” and that the presidents “must have lived in their district for at least three years.”

Our outlook… There are a number of criteria Trump is presumably using to select a nominee for Fed Chair… willingness to cut rates (something he said this week is a litmus test), some degree of personal relationship, and acceptability to the market.  Hassett clearly embodies the first two criteria and while some market participants appear to feel he does not embody the latter, the positive comments from SBC members suggests that whatever market concerns exist aren’t material enough to detract from their willingness to confirm Hassett.  This dynamic reinforces expectations that Hassett is the most likely to be nominated among the longer list of Trump has reportedly been considering.  If Hassett was to encounter new friction in the Senate, others who’ve reportedly been under consideration, most notably Secretary Bessent, and potentially current Governor Waller as well as former Governor Warsh, and possibly others, likely fulfill the criteria Trump is using the select a nominee.  While we’ve been expecting Trump to announce a nominee in December, he recently said he’d likely do so in January.  He would presumably do so in early January, so that the SBC could consider the nominee and the Senate could hold a confirmation vote prior to the expiration of Miran’s term on 1/31 (the seat that the new nominee would be filling).

* Once a new Trump appointee is confirmed by the Senate and in place on the board, the question will arise as to when Powell will resign as Chair and whether he’ll resign from his board seat.  While it would be unusual for a Chair to resign well before his term as Chair expires (May in Powell’s case), it is common for a Chair to resign once his successor is confirmed and to leave his board seat (which expires in 2028 for Powell).  Given that, Powell could feel resigning early is still consistent with precedent and not a result of him being “pushed out” early, thereby protecting the independence of the Fed.  It would also be consistent with precedent for him to resign his board seat at that point.  If he was to stay as Chair until May and/or stay in his board seat, which he may choose to do in order to exert ongoing influence over monetary policy, the level of friction with the White House is likely to significantly accelerate and political conflict surrounding the Fed would be pronounced.  These circumstances suggest Powell will resign as Chair and from his board seat early in the year, once his successor is confirmed.

* If Powell resigns from his board seat, Trump will have the opportunity to nominate another board member, which would give his nominees a majority on the board (i.e., Governors Waller and Bowman, as well as replacements for Miran and Powell).  This will not only enable this majority to to have greater influence over monetary decisions but it will provide more opportunity to re-shape the line-up of regional bank presidents.

* As noted in the separate update below, the Supreme Court is likely to give the President clearer authority to fire heads of independent agencies at-will, though is likely to carve out the Fed (i.e., not give the President the authority to fire board members at-will).  Separately, the court may clarify the circumstances under which the President can fire board members for cause in a manner that allows Trump to fire current Governor Cook.  If this occurs, Trump will have another board seat to fill, thereby giving him greater authority to influence the Fed.

Watch for these developments… It appears clear that the White House intentionally floated Hassett as a nominee for board chair, which is a different circumstance from the prior circulation of various names for potential nominees.  If we see other names being floated at this stage, it will be a meaningful indication that Hassett’s nomination is in doubt.  We are continuing to look for reaction from members of the SBC to Hassett and any new names that are floated.  There is likely to be a lot of deference to Trump from Senate Republicans, so concerns about any potential nominee would need to be pervasive in order for their names to be withdrawn, an unusual circumstance, but one we saw in Trump’s first term when Stephen Moore and Judy Shelton were under consideration as Fed nominees.