President Donald Trump has begun reshaping the Federal Reserve, which determines the direction of the global economy. As he has clashed with current Chairman Jerome Powell over interest rate policies, the upcoming chairperson selection is expected to have a significant impact on future Fed policy direction.
On the 5th, in an interview with CNBC, Trump first revealed his stance on the candidates for the next Fed chairperson. He stated, "Scott Bessent, the Secretary of the Treasury, has been excluded from the list of candidates in respect of his own wishes," while mentioning Kevin Hassett (63), Chairperson of the National Economic Council (NEC), and Kevin Warsh (55), former Fed governor, as major candidates. Trump noted, "Both Kevins are excellent," expressing a positive evaluation of them.
Following these remarks, Washington and Wall Street focused on the policy inclinations and visions of the two individuals. Chairperson Kevin Hassett is regarded as someone with a deep understanding of Trump's economic policies. He is currently the Chairperson of the National Economic Council (NEC) and previously served as the Chair of the Council of Economic Advisers (CEA) during Trump's first administration.
The NEC Chairperson serves as the 'control tower' for economic policy within the administration. They coordinate economic policies scattered across various ministries and align them with the national philosophy. The CEA Chair can be compared to the President's economic tutor, providing objective economic data and expert advice based on analysis. Since Alan Greenspan became Fed Chair in 1987, important past Fed chairs, including Ben Bernanke in 2006 and Janet Yellen in 2014, have held this position.
Hassett holds a Ph.D. in economics from the University of Pennsylvania and has long been involved with the conservative think tank American Enterprise Institute (AEI), emphasizing the need for tax cuts and deregulation. In the Trump administration, he was responsible for the key policies of corporate tax cuts and tariff policies. According to the political news outlet Axios, he played a role in providing the theoretical foundation for the implementation of these policies, which is why Trump considers him one of his trusted aides.
However, he has primarily focused his academic research on fiscal and tax policies. Given his lack of experience in operating monetary policy, some have suggested that "there may be difficulties in addressing the complex tasks of the Fed." There are also various opinions on how his distinctively conservative political inclination might affect the Fed's ability to maintain political neutrality.
Another candidate, Kevin Warsh (55), is a 'careerist' with internal experience at the Fed. He was appointed to the Fed board at the age of 35 during President George W. Bush's administration and served until 2011. He notably participated directly in policy decisions at the forefront of crisis response during the 2008 global financial crisis, assisting Chair Bernanke. After leaving the Fed, he worked at the Hoover Institution, a conservative think tank affiliated with Stanford University.
Recently, he has maintained a consistently critical stance towards the policies implemented by current Fed Chair Powell. He pointed out that the Fed made mistakes regarding inflation following the pandemic and that hesitancy to lower interest rates is problematic. According to PBS, Warsh mentioned that "a regime change is needed in the execution of Fed policies."
However, his claims differ somewhat from his actions during his time as a Fed board member. While he has recently expressed a favorable voice on interest rate cuts, during his tenure as a Fed board member, he displayed a hawkish tendency that prioritized price stability. In light of these changes in his stance, American media outlets such as the Wall Street Journal are speculating whether there has been a change in his judgment of the current economic situation or if this is a political move to align with the Trump administration. Trump also expressed great respect for him, while being cautious, stating, "There are cases where very good people do not perform well when they actually get the job."
Trump's remarks regarding the upcoming Fed chair appointment have also impacted the financial markets. On the prediction market platform Kalshi, the chances of Hassett and Warsh being named the next chair have significantly increased to 35% each.
Trump has also left open the possibility of using the position of the recently resigned Adriana Kugler on the Fed board for the chair appointment. He could appoint someone from the list of candidates as a commissioner first, potentially changing the atmosphere of the Fed board. In an interview with CNBC, Trump responded to this question by saying, "That is a possibility," indicating that he is considering various options.
Even if the Fed chair changes, the major decisions made by the Fed cannot be determined unilaterally by the chair alone. The benchmark interest rate is set by a vote of 12 members of the Federal Open Market Committee (FOMC).
However, the Fed chair sets the agenda for FOMC meetings and determines the direction of discussions. They also have significant influence as the sole voice representing the committee and directly communicating with the markets. Depending on which economic data the chair emphasizes and which policies are prioritized, discussions and decisions within the committee can change. Ultimately, experts pointed out that if a person who aligns the policy codes with the administration becomes the head of the Fed, the Fed's policy focus is likely to shift towards the administration, irrespective of the FOMC's internal voting structure.