Kevin vs Kevin: Trump's front-runners to lead the Fed

Telegraph

16-07-2025

Donald Trump's hunt for the next chair of the Federal Reserve is becoming a battle between two Kevins.
Scott Bessent, the US treasury secretary, said on Tuesday that Trump had begun the 'formal process' to line up a replacement for Jerome Powell, the Fed boss who has enraged the president by refusing to cut interest rates.
'It's President Trump's decision, and it will move at his speed,' Bessent told Bloomberg.
Trump has long been at war with Powell, who he has publicly branded a 'numbskull', 'a stupid guy' and a 'knucklehead' for ignoring the president's endless demands to slash interest rates.
'Consumer Prices LOW. Bring down the Fed Rate, NOW!!!' Trump wrote on Truth Social on Tuesday, despite official figures showing a rise in inflation in June.
In April, Trump's threats that he would sack Powell triggered a slump in US stocks, a jump in borrowing costs and sent the dollar tumbling to a three-year low amid concerns about threat to the Fed's independence.
The market rout pushed Trump to row back on his threats and tell reporters: 'I have no intention of firing him', a line the president has stuck to since.
But Powell's term expires either way in May 2026. Speculation is mounting that Trump will try to undermine Powell by announcing his replacement early.
Whoever replaces board member Adriana Kugler when her term ends in January could be the new Fed chair-in-waiting.
Names in the ring include Bessent and Fed board member Christopher Waller.
But two front-runners are said to have emerged: Kevin Hassett, the director of Trump's National Economic Council, and Kevin Warsh, who was previously a contender as Trump's pick for treasury secretary.
Hassett met with the president at least twice in June to discuss his potential appointment as chair, according to the Wall Street Journal.
Meanwhile, Warsh was said to be Trump's favoured pick earlier in the year and is still thought to be in the running.
The economic outsider
One Kevin, Hassett, is a long-time inhabitant of Trump's orbit who knows how to speak to the president. The other has a reputation as a Wall Street whisperer with gold-plated Republican connections.
Both would struggle to convince markets that they'd maintain the Fed's ability to set interest rates free from government interference.
Hassett is a PhD economist who is what Joe Brusuelas, RSM US's chief economist, terms 'a creature of the Beltway', referring to the highway that encircles the US capital. He is also part of Trump's old guard.
Hassett had a stint as an economist at the Fed during the 1990s before moving into the political sphere.
He worked as an economic adviser on the presidential campaigns of George W Bush, John McCain and Mitt Romney and has held various roles in think tanks. He served in Trump's first administration as chair of the Council of Economic Advisers (CEA) for two years and then as a senior adviser.
During the pandemic, Hassett was behind a fateful chart posted on social media by the CEA that was widely interpreted as a government forecast that Covid deaths would fall to zero by May 15 2020 (more than 1m Americans died of Covid after this date).
Hassett later said the chart was not a forecast but was only supposed to be illustrative of a formula.
In between the Trump administrations, Hassett took a role at the private equity firm set up by Trump's son-in-law Jared Kushner. In the new administration, he has played a key role in the economic arguments for tax cuts in the 'one, big, beautiful bill'.
'I have always been a little suspicious of his work because I fear that it's starting with a position and then trying to defend it,' says David Wessel, director of The Hutchins Centre on Fiscal and Monetary Policy at the Brookings Institution.
Hassett seems to consider himself a spokesman for the president rather than as an adviser who might challenge him, says Wessel. 'He has had no reluctance to go on TV and defend whatever Trump does.'
As such, the 63-year-old will have a hard time convincing markets that he will credibly maintain the Fed's independence, says Wessel.
He may also struggle to secure the Federal Open Market Committee (FOMC)'s votes on interest rate decisions.
'He has taken such firm positions that are sometimes outside what many economists think, I think that people at the Fed would be suspicious of arguments he makes that appear to be to defend something that Trump wants him to do,' says Wessel.
On Sunday, Hassett told ABC that Trump had the authority to fire Powell. 'That's a thing that's being looked into, but certainly if there's cause, he does.'
Hassett's comments were in stark contrast to remarks he made in an October interview with the Financial Times when he said that during Trump's first term, 'I was sure that the Fed chair couldn't be fired by the president as a matter of law'.
He has been deeply critical of the Fed and suggested in an interview with Fox last week that the Fed had made a political decision to keep interest rates higher than other central banks (the European Central Bank's policy rate is now 2pc, compared to the Fed's 4.5pc rate).
'That raises the spectre that they're not being non-partisan,' Hassett said.
The hawk turned Trumpist
Kevin Warsh, 55, will face similar challenges convincing markets he is not in the pocket of the president, but he has a reputation as a charmer who understands Wall Street.
After stints at Stanford, Harvard Law and Morgan Stanley, Warsh emerged as a kind of political prodigy in Bush's White House. Aged just 35, he became the youngest appointee to the Fed's board of governors in the central bank's history in 2006.
Warsh played a crucial role during the financial crisis as then-chair Ben Bernanke's emissary to investment bankers and the Republican Party. While Bernanke was cerebral and introverted, Warsh was outgoing, practical and had a golden Rolodex, says Wessel.
Married to Jane Lauder, an heir to the Estée Lauder fortune whom he had met at Stanford, Warsh was also wealthier than all of his fellow governors combined.
This marriage also meant that Ronald Lauder, the Republican donor and a long-term friend of Trump, became Warsh's father-in-law.
Warsh could speak the language of investment bankers, has a natural sense of politics and a knack for intelligence gathering, says Wessel.
But since Warsh has not done a huge amount since he left the Fed in 2011.
He is a visiting fellow at the Hoover Institution and lectures at Stanford's graduate business school, has a selection of board and advisory roles and was a contender for Trump's pick as treasury secretary. But he is not running a fund or a company.
He is, however, very public about his criticism of the Fed, who he has blamed for driving up inflation during the pandemic.
Warsh has long had a personal reputation as a hawk, meaning he is someone who generally advocates for stronger action to bring inflation down.
But now he has apparently changed tack in line with the president's calls for rate cuts. In an interview with Fox Business on Sunday, Warsh said the Fed 'has the policy mix exactly wrong' and that 'rates are too high'.
'It needs to shrink the Fed balance sheet and cut interest rates,' Warsh said.
The irony of Trump's recent storm of threats to the Fed is that markets will be jittery about whomever the president appoints as the next chairman.
Powell's successor may have to take an even tougher stance than he has simply to keep markets – primarily Treasury yields – under control. This could mean voting to hold interest rates for even longer than expected.
Kush Desai, the White House's deputy press secretary, says: 'President Trump has been clear about the need for the Federal Reserve's monetary policy to complement the administration's pro-growth agenda.
'He will continue to nominate the most qualified individuals who can best serve the American people.'