Introduction to the Federal Reserve Chair Nomination
The National Economic Council chief, Kevin Hassett, has emerged as a top contender to replace Jerome Powell as the Federal Reserve Chair. Prediction markets are leaning in his favor, and President Donald Trump has hinted that he knows who he’s going to pick. The White House aims to make the announcement by Christmas. However, economists and former colleagues who have known Hassett for years have mixed reactions to his potential nomination.
A Brilliant Policy Architect or a Political Loyalist?
To his supporters, Hassett is a brilliant policy architect and a "hard money guy" who will defend the dollar. However, some of his former peers are concerned that he has become a political loyalist willing to sacrifice institutional independence and objective truth to please his boss. Hassett has been a regular presence on cable news, defending Trump’s policy priorities, downplaying unfavorable data, and echoing the White House line on everything from inflation to the legitimacy of federal statistics.
Hassett’s Extensive Experience
Before joining the Trump administration, Hassett was a thoroughly establishment conservative economist. He worked at the Fed, Columbia Business School, and held posts at the American Enterprise Institute and Hoover Institution. He advised the presidential campaigns of John McCain, George W. Bush, and Mitt Romney. His 2017 nomination to chair the Council of Economic Advisers drew a letter of support signed by heavyweights across the political spectrum, including former Fed chairs Alan Greenspan and Ben Bernanke.
The Change in Hassett’s Stance
Hassett has become a fierce economic surrogate for Trump, defending his policy priorities and downplaying unfavorable data. He has echoed Trump’s attacks on the central bank and the statistics it relies on, accusing Fed officials of putting "politics ahead of their mandate" and calling the central bank "late to the game" in cutting rates. He has also suggested that there is a partisan "pattern" in the jobs data produced by the Bureau of Labor Statistics.
Critique from Former Allies
Some of Hassett’s old allies have peeled off due to his change in stance. Dean Baker, a progressive economist who has coauthored papers with Hassett, said that he would not support Hassett’s nomination today because he has been "incredibly dishonest." Baker pointed to Hassett’s talk of partisan bias in the BLS data as "not the least bit serious" and noted that the agency’s methodology is public and constantly refined based on internal and external research.
The Case for Hassett
Despite the criticism, some of Hassett’s supporters argue that he is exactly what the doctor ordered. Stephen Moore, a former Trump advisor and senior fellow at the Heritage Foundation, said that Hassett is a "fine economist" who understands the purpose of the Fed is to keep inflation under control. William Beach, a former BLS commissioner and a Trump appointee, also defended Hassett, saying that he has deep knowledge of the banking system and a rare ability to communicate clearly.
The Inflation Risk Premium
Veteran Fed watchers see warning signs flashing in the bond market. The immediate uptick in the 10-year Treasury yield suggests that bond traders are betting that a Hassett-led Fed might be softer on inflation, necessitating higher long-term yields to compensate for that risk. This could lead to a revolt from the bond vigilantes, sending rates soaring.
Conclusion
In conclusion, Kevin Hassett’s potential nomination as the Federal Reserve Chair has sparked a mix of reactions from economists and former colleagues. While some see him as a brilliant policy architect, others are concerned that he has become a political loyalist willing to sacrifice institutional independence and objective truth. The bond market’s reaction to his potential nomination suggests that there are warning signs of an inflation risk premium. Ultimately, the decision to nominate Hassett will depend on whether he can demonstrate the degree of political independence necessary to be a successful Fed chair.
