"Trump ally" Hassett leads the race for Federal Reserve Chair, market sees echoes of Bernanke.

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White House Chief Economic Adviser Kevin Hassett has become a leading contender for the next Fed chair, a personnel change that is being closely watched by the markets. Although investors have concerns that his close ties to the Trump administration could affect the Fed’s independence, the market’s initial reaction has been unusually calm, evoking an important historical precedent—Ben Bernanke, who also started from the White House economic team.

According to a previous article by WallstreetCN, President Trump’s National Economic Council Director Kevin Hassett is very likely to receive the nomination for the next Fed chair, succeeding the incumbent whose term ends next May. This news quickly changed market expectations; on prediction platforms like Polymarket and Kalshi, the probability of Hassett being nominated has risen to 57%, making him stand out among numerous candidates and the most popular choice.

However, this news, which could reshape the outlook for U.S. monetary policy, has not roiled financial markets. The yield on the U.S. 10-year Treasury, regarded as the anchor of global asset pricing, briefly fell below 4% after the news broke and then stabilized, with no sharp sell-off or rush to buy. Long-term interest rate futures also saw little movement, indicating the market’s expectations for the path of the federal funds rate over the next few years remain stable.

The calmness of the market sends a key signal: investors are currently not panicking about the front-runner being seen as a “loyalist.” For Hassett, he has smoothly passed his first market stress test even before taking office, which in turn may consolidate his chances of being nominated. But the real test is far from coming. Future challenges will lie in whether he can maintain the Fed’s reputation as an independent central bank under White House political pressure.

“Loyalty” as a Key to Nomination

In this months-long fierce contest, loyalty seems to be becoming the primary criterion for the Trump administration’s selection of the next Fed chair. According to reports, President Trump considers his nomination of Jerome Powell eight years ago to have been a major mistake and therefore wants his successor to be more aligned with the administration’s policy priorities.

Against this backdrop, Hassett’s advantages stand out. He is believed to be highly aligned with Trump’s economic views, including the belief that rates should be lowered. In a media interview on November 20, Hassett stated that if he were the Fed chair now, he would immediately cut rates because the data indicate it should be done. He also criticized the Fed for allowing inflation to spiral out of control after the pandemic.

George Pollack of Signum Global Advisors analyzed that the president believes Hassett is “the candidate most likely to support the administration’s priorities,” and that “on a personal relationship level, he’s highly aligned with and owes a lot to the president, so he would be the most cooperative.” Joe Kalish of Ned Davis Research also pointed out that the administration wants to find someone who believes the U.S. economy can achieve faster growth without triggering inflation.

In contrast, several other strong contenders are gradually losing their advantage. Former Fed Governor Kevin Warsh was once a hot favorite, but his momentum didn’t last. Current Governor Christopher Waller has likely been hurt by not voting for larger rate cuts in the last two monetary policy meetings. Wall Street generally believes that whether it’s Warsh, Waller, or BlackRock executive Rick Rieder, they would all to varying degrees seek independence from the administration.

Although some analysts have expressed concerns about Hassett’s nomination, financial markets have given a neutral-to-optimistic response with their pricing. According to Bloomberg’s rate probability data, the market’s long-term forecast for the federal funds rate has been almost unaffected, with the widespread expectation still that it will bottom out below 3% in early 2027, basically unchanged from before Hassett became the front-runner.

Joe Kalish of Ned Davis Research believes that from the perspective of Fed independence, Hassett as a cabinet member would be “the worst choice,” and also criticized his communication skills as lacking. However, the market’s calm shows investors are currently paying more attention to the macroeconomic data itself than to potential personnel changes. Unless the inflation trajectory changes significantly, personnel issues will not immediately translate into market volatility.

Bernanke’s Historical Echo

Hassett’s path to nomination bears an astonishing resemblance to Ben Bernanke’s two decades ago. In 2005, when President George W. Bush nominated Bernanke to succeed Alan Greenspan, Bernanke also served as Director of the National Economic Council. At the time, he was seen by the market as a politically reliable, “safe” choice who could ensure policy continuity.

However, history took a surprising turn. Not long after Bernanke took office, the U.S. subprime bubble burst and the global financial crisis erupted. In this unprecedented crisis, Bernanke led the Fed in adopting a series of unconventional policies, including quantitative easing. His decisiveness and independence far exceeded the outside world’s initial expectations, and he eventually won a Nobel Prize in Economics for it.

Bernanke’s experience shows that a chair initially viewed as an “insider” will reveal their true policy stance and independence only when faced with severe economic tests. Whoever ultimately leads the Fed, the real challenge often comes not from political appointments, but from unpredictable economic shocks.

For Hassett, the current “Trump confidant” label could be a double-edged sword. As pointed out in analyses, this perception may force him to work even harder after taking office to prove his independence to the market and win its trust.

Currently, the White House’s effort to fire Biden-appointed Fed Governor Lisa Cook on grounds of mortgage fraud seems to be deadlocked, suggesting the difficulty of a full shake-up at the Fed. This could be one reason why the market remains calm.

Ultimately, the assessment of any Fed chair will depend on the key decisions he or she will face in the future. While the market hopes Hassett will not experience as brutal a test as Bernanke, history has proven that the Fed chair’s job has never been an easy one. He has passed the initial test, but this is just the beginning.

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