December 12, 2025
We need to talk about Kevin!
Possible implications of Trump’s attempts to politicize the Fed.
To the point!
Trump wants nothing more for Christmas than controlling monetary policy.
We need to talk about Kevin. Don’t worry – this is not a belated review of Lionel Shriver’s 2003 bestseller. It is about what the likely nomination of Kevin Hassett to chair the Federal Reserve might mean. Jerome “Jay” Powell must relinquish the job as chairman in May. Of all the names floated in recent months as his successor, Hassett is the most political choice. A longtime fellow-traveler of Donald Trump, he is an ardent loyalist the president believes he can rely on more than anyone else on the shortlist.
Hassett currently serves in the Trump cabinet as director of the National Economic Council. A direct hop from the cabinet to the top of the central bank is, shall we say, unorthodox. But Trump would not be Trump if he keenly observed convention. The president hopes to install someone at the Fed who will finally deliver his wish for lower interest rates. Trump considers that Jay Powell, who he nominated during his first term has betrayed his trust. Hassett seems more inclined to oblige. In public statements he has argued that price stability, faster growth and low rates can coexist – after all, productivity gains from artificial intelligence, which tend to be disinflationary, are just around the corner. At least that’s what he seems to believe. Time will tell.
Investors are unnerved
Institutional investors have reacted to Trump’s favorite with disappointment shading into alarm. With Hassett, they fear, the central bank could become politicized. If short-term rates fall too fast at his urging, inflation worries could flare. Yields on longer-dated Treasuries would likely rise, and doubts about the sustainability of America’s burgeoning public debt could return to the fore. But it would also constitute a huge blow to the already reeling US housing market, where mortgages are typically contracted at very long tenors. The consequences, financially as well as politically, would be hard to predict.
In that context, Shriver’s novel is perhaps not entirely beside the point. There, the title character unleashes a school massacre on the eve of his 16th birthday. No one expects Kevin Hassett to reach for a weapon at the Fed. But the question is whether he could trigger a figurative bloodbath by eroding the central bank’s credibility in service of Trump’s mission. That matters: in the novel, it is only Kevin’s family that is plunged into existential crisis (well, I assume so are his victims’ families even if they do not figure prominently in the book). The loss of a credible and predictable Fed, on the other hand, would provoke a crisis across the global financial system. By comparison, the 2008 financial crisis might look like a walk in the park. After all, in all recent financial crises the Fed has acted as the ultimate stability anchor and the U.S. Treasury bonds as safe haven investments. Never before has the safe haven been mined. We can only imagine the consequences.
The Fed is well shielded from political meddling
Alas, in my view, the worry is overdone. Even if Trump wants nothing more for Christmas than a grip on monetary policy (well, thinking of it the Nobel Peace Prize may rank even higher on his wish list, despite the recognition as a peacemaker by FIFA, the world football association), that lever will not be found under the Christmas tree at Mar‑a‑Lago, which will no doubt dripping with golden ornaments. He may fume; the rest of us can exhale.
Why? The chair’s role matters – no question. But he does not set policy alone. The Federal Open Market Committee (FOMC), with twelve voting members, decides by vote. Seven of those are the Board of Governors. Presidents nominate governors to 14-year terms. One of those seats is currently being kept warm by Trump’s economic adviser Stephen Miran, who is on unpaid leave from the White House. Hassett could simply slide into Miran’s chair. Other than that, only one additional board seat will open during Trump’s term: Jay Powell’s, in January 2028. Though Powell’s chairmanship ends in May, he can, if he chooses, remain on the board as an ordinary governor. Trump’s attempts to unseat Governor Lisa Cook via legal maneuvers look not very promising. The remaining FOMC members come from the regional Fed banks, not nominated by the president.
In short, Trump cannot flip the majority. And the majority has been notably cohesive in recent meetings. Even governors who have more or less openly jockeyed to succeed Powell have joined the rest in voting for small interest rate moves. Market expectations for future Fed policy have accordingly stabilized (see Chart). The central bank’s independence seems intact – and that is just as well. An American monetary policy à la Erdogan would be an experiment all of us could well do without.
Fig: Market expectations Fed rate at yearend-2026
(upper bound of target range)
⬤ {series.name}: {point.y}
Dr. Moritz Kraemer, Chief Economist / Head of Research at LBBW
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