Backing "one of their own" in reform: "Shadow Fed Chair" Hassett supports Bessent, sets residency requirements for regional Fed presidents

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Although he has not truly taken command yet, Trump's chief economic advisor Hassett has already hinted at supporting "his own people" and calling for reform within the Federal Reserve.

On Friday, the 5th, Eastern time, Kevin Hassett, Director of the White House National Economic Council, expressed support in a media interview for Treasury Secretary Bessent's proposed new rule for regional Fed president candidates requiring them to have lived in their respective districts for at least three years. This is the latest move by the Trump administration to reshape the Fed.

Bessent announced on Wednesday that he would push forward this new regulation, and criticized the Fed for "mission creep" beyond monetary policy. On Friday, Hassett remarked that the original intent of establishing regional Feds was to ensure that concerns from different areas under the federal system would have a voice at the decision-making table.

Hassett also reiterated that the Fed should remain cautious and cut interest rates at the upcoming FOMC meeting next week. He expects an economic boom in 2026, with productivity growth possibly reaching 4%. These remarks come as market attention is highly focused on Fed personnel changes, and Hassett has already become the "shadow Fed chair." Media reported last week that Hassett is the top candidate to replace Fed Chair Powell.

Regional Fed Reform Draws Attention

Hassett criticized the "unfortunate aspect" of the Fed’s current design, where only staff from Washington and New York have permanent voting rights on interest rate decisions. He revealed that he has discussed changing this situation with Bessent, but added, "I don’t think this requires firing any current staff."

When asked whether the residency requirement would "interfere" with February’s term confirmations, Hassett said, "This is something I haven’t discussed with everyone yet." He also didn’t clarify whether Trump plans to veto any Fed president candidates who haven’t lived in their districts for three years.

Under the current system, the U.S. president has no statutory influence on the appointment of regional Fed presidents. Directors of regional Feds, composed of non-financial industry professionals, nominate presidents for their respective districts. The Federal Reserve Board votes to confirm the nomination, establishing the local Fed president.

Unlike the Fed Chair nomination, regional Fed presidents do not require Senate confirmation, nor do they need presidential nomination.

On Wednesday, Bessent suggested the Fed Board could outright state: if a candidate hasn’t lived in the district for at least three years, their nomination will be rejected.

Regional Fed presidents serve five-year terms, and must be reconfirmed every five years. The current term will expire next February. Hassett did not disclose on Friday whether he had discussed with President Trump the potential impact of the new rule on the February confirmation of regional Fed president terms.

Interest Rate Cut Expectations Reaffirmed

Hassett said that Fed policymakers should cut interest rates at next week’s meeting. He said:

"Now is a good time for the Fed to cautiously cut rates again."

Hassett expects the U.S. economy to experience a boom in early 2026, due to recovery from the recent federal government shutdown and new factory operations delivering results. He also predicts that investments in artificial intelligence (AI) will drive a surge in productivity,

"Given the accelerating pace of AI development, I think next year productivity could rise by 4%."

He said that the speed of AI application in the economy is "much faster than" the wave of internet and computer adoption in the 1990s. The U.S. has not seen an annual productivity increase of 4% since 1999, except for distortions caused by major economic downturns in 2009 and 2020.

Hassett stated that barring "black swan" events, 2026 "will be one of the golden years in economic history." He said if economic growth in the first and second quarters of next year is only 3%, he would be "disappointed" because "it's very easy for growth to be another percentage point higher."

Nomination Prospects Emerge

Hassett has been frequently named by Trump recently. At an event in the White House on Tuesday, Trump publicly said: "I think there’s another potential Fed chair here—he's a respected person, I can tell you. Thank you, Kevin."

Wallstreetcn previously mentioned that media learned Thursday that Trump administration aides and allies are discussing letting Bessent head both the White House National Economic Council and the Treasury, if Hassett is appointed as Fed chair. This arrangement would make Bessent the sole leader of Trump’s economic policy, with authority covering both the Treasury Department and the White House.

Trump has stated he will announce his Fed chair pick in early 2026. Any candidate must be confirmed by the Senate for the chair position and, if not already a board member, must be confirmed for the board seat.

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