Kevin Hassett has emerged as the leading candidate to replace Federal Reserve Chair Jerome Powell, signaling a potential shift toward sharply easier monetary policy next year.
A Break From The Powell Era
Hassett, currently serving as Director of the National Economic Council, holds an 80% probability of becoming the next Fed Chair based on prediction market data from Kalshi as of Dec. 2.
He is known for a supply-side philosophy that argues the inflation battle is effectively won and that maintaining restrictive policy amounts to unnecessary economic drag.
His public comments throughout 2024 and 2025 reveal a consistent push for lower interest rates.
In multiple interviews he said he would favor immediate cuts, agreeing with President Donald Trump that borrowing costs should move significantly lower.
He has also suggested that a December decision not to cut rates would reveal partisan motivations rather than economic logic.
The President on Tuesday mentioned Hassett as a “potential future Fed Chair”, after remarking that his list of candidates is “down to one.”
If appointed, Hassett would take Powell's seat in May 2026, following the expiration of Powell's term.
Powell is expected to resign his remaining Governor position shortly afterward, consistent with precedent.
That step would give the administration another vacancy to fill on the Board of Governors.
Warsh's Role And A Possible Structural Shift
Former Fed Governor Kevin Warsh, who has openly criticized the institution's current structure, remains Hassett's strongest competitor for the top job.
Even if he is not appointed Chair, market watchers expect him to join the Board and help execute an overhaul of the Fed's approach to growth and inflation.
Warsh has called for a new Treasury-Fed Accord and argues that rapid productivity gains from artificial intelligence are inherently disinflationary.
His stance reinforces Hassett's view that restrictive rates represent a policy error.
A leadership team centered on Hassett, Warsh, Governor Chris Waller, and Governor Michelle Bowman would create one of the most dovish voting blocs in decades.
10 other FOMC members remain swayable, meaning the challenge for the new Chair would be forging consensus rather than relying on assumed authority.
Why Powell's Resignation Timing Matters
Markets are preparing for a four-stage reaction.
Hassett's likely nomination in December or January is expected to produce immediate bullishness in risk assets.
However, investors may grow uneasy if Powell does not announce his resignation within several weeks of the nomination because his continued presence could block additional appointments.
A surge in risk sentiment would likely follow once Powell confirms his departure.
That euphoria could fade ahead of the first Hassett-led FOMC meeting in June 2026, when traders will look for clues on how unified the new committee has become.
Investors Face A Rare Fed Repricing Event
Analysts say the market has not fully priced in the potential shift in rates.
The December 2026 interest rate projection sits near 3.02%, yet Hassett's policy stance points to a materially lower equilibrium.
His public comments align with an appropriate policy rate between 2% and 2.5% once disinflation takes hold.
The Fed's median dot plot is misleading for investors because it includes non-voting participants.
Based on public statements, voting members appear more dovish.
Removing outgoing policymakers and substituting Hassett and Warsh produces a lower blended projection of about 2.6%.
A transition in economic modeling could reinforce that trend.
The Fed's Tealbook is produced by a large Keynesian-leaning research staff.
Installing a supply-side economist to lead the division could shift inflation projections lower and give the full committee more confidence to vote for aggressive cuts.
Cross Asset Effects Of A Dovish Fed
A Hassett-led Fed would attempt to engineer recession-level interest rates while assuming strong growth from productivity gains.
That combination would likely push two-year yields sharply lower even as ten-year yields remain elevated due to higher nominal growth expectations.
Equity markets would likely respond with broader multiple expansion, particularly in growth and technology stocks.
Gold could outperform Treasuries if the market interprets the shift as a move away from strict inflation targeting.
Bitcoin (CRYPTO: BTC), which has struggled to respond to macro easing signals in recent months, could benefit from looser policy combined with deregulatory tailwinds.
The Market's Central Question
Investors will focus not only on Hassett's appointment but on whether he can secure majorities inside a divided FOMC.
A fractured committee would add volatility and raise questions about institutional stability.
A unified committee would give the new Chair the ability to execute one of the most dramatic rate-cutting cycles of the modern era.
The stakes extend far beyond the next two meetings.
Markets are preparing for a structural change in how the Federal Reserve interprets inflation, productivity and growth.
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