"Shadow Fed Chair" Hassett speaks: The Federal Reserve should cut rates next week, expected by 25 basis points.

Hassett stated that the Federal Reserve should cut rates at next week's meeting, and expects a rate cut of 25 basis points. This comes as Trump prepares to nominate a new Fed Chair, raising market attention to the direction of monetary policy.

On Thursday, "shadow Fed chair" and Director of the National Economic Council Kevin Hassett, in an interview with Fox News, said that based on recent statements from Federal Reserve Board members and regional Fed Presidents, "They now seem more inclined toward cutting rates." He emphasized his hope to "achieve lower interest rates in the long term," and stated that if the market reaches a consensus around 25 basis points, "I will accept it."

Earlier this week, Trump said he plans to announce his candidate for Fed Chair in early 2026, and has already chosen the final candidate. He has publicly praised Hassett several times recently and hinted at White House events that he may be nominated. If the nomination proceeds, Trump's allies are discussing having Treasury Secretary Bessent concurrently serve in Hassett's current position.

However, Deutsche Bank believes that even if Hassett takes office, actually implementing rate cuts will face major obstacles. By mid-2026, the underlying fundamentals of the U.S. economy may not support significant cuts, and hawkish resistance within the Fed will make aggressive easing policies difficult to achieve.

Long-Term Easing Goals and Short-Term Compromises

In the interview, Hassett clearly expressed his long-term pursuit of lower interest rates, while also showing a pragmatic attitude. He stated that if the Federal Open Market Committee reaches consensus around a 25 basis point cut, he is willing to accept it.

When asked how many additional rate cuts he would pursue if nominated, Hassett avoided specific numbers, emphasizing that the Fed Chair's duty is to "be highly sensitive to data," and must consider the impact of rate adjustments on inflation and employment. This demonstrates his attempt to seek a balance between policy inclination and central bank independence.

Nomination Process Accelerates

Recently, Trump has frequently signaled the possibility of Hassett's nomination. At a White House event on Tuesday, Trump publicly stated: "I think there's a potential Fed Chair right here—I don't know who could say this—a potential one. He is a respected man, I can tell you that. Thank you, Kevin."

Hassett himself has maintained a cautious attitude toward the nomination, saying, "The President is considering several candidates, and it is my honor to be on the same list with some excellent individuals. We'll see what happens." Trump has said he will announce the final choice in early 2026.

Market Expectations Face Reality Check

Deutsche Bank has cautioned against optimism about a "dovish turn" in the market. The bank points out that by mid-2026, the underlying fundamentals of the U.S. economy may not support large rate cuts, and hawkish members within the Fed's committee will also pose resistance.

Investors should be wary of overpricing aggressive monetary easing. Deutsche Bank believes that the ultimate policy path is likely to be far milder and more neutral than the market expects. Even if Hassett is successfully appointed, his policy execution will be constrained by multiple realities.

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