Qinbafrank posted on X. U.S. President Donald Trump has unexpectedly changed his stance on the nomination for the next Federal Reserve Chair, leading to speculation about his motives. Several factors may have influenced this decision. Firstly, the criminal investigation initiated earlier this week against Jerome Powell has faced strong opposition from within the party, Congress, and Wall Street. Key members of the Senate Banking Committee, including Tillis, have voiced their disapproval, as this committee plays a crucial role in the appointment process for the Fed Chair. Trump aims to retain his loyal advisor, Hassett, in the White House to demonstrate that he values market reactions and is not acting unilaterally, partially alleviating concerns about the Fed's independence.
Secondly, with the midterm elections approaching in 2026, Trump's policies are focused on addressing public welfare and affordability. This requires effective coordination and communication of policy implementation and significance. Hassett, as the Chairman of the National Economic Council, is responsible for aligning economic policies with the presidential agenda and explaining them to the public. His role is particularly significant in the lead-up to the midterm elections.
There is a lingering question about whether Trump is dissatisfied with Besent, who was primarily responsible for explaining policies to the public in 2025, such as tariffs and the Great America Act. It is unclear if Trump's decision to keep Hassett in his current position is related to Besent's expression of discontent over Powell's investigation during a conversation with Trump last Sunday.
The market impact includes a reduction in expectations for interest rate cuts this year. Even if Kevin Warsh is appointed, the rate cut might only be slightly smaller than under Hassett, with a difference between two and three cuts. Warsh's potential appointment could improve perceptions, as he stands between the market and Trump, alleviating concerns about independence.
However, this does not mean Trump has definitively decided to nominate Warsh. It appears to be part of Trump's strategy: excluding Hassett, testing market reactions by speaking during active trading hours, allowing Warsh to lead, observing asset responses, and subsequently introducing other options to shape market expectations before announcing his final choice.