Trump names names, the market bets, and the rules of the Federal Reserve's monetary policy game are about to change.
As Powell's term is set to end in May 2026, the White House has begun actively searching for the next Federal Reserve chairman. Currently, all signs point to the same candidate—the current director of the White House National Economic Council, Kevin Hassett.
Predictions from the market show that Hassett's chances of winning have soared to over 85%, far exceeding other potential candidates. This change is not only about personnel replacement but may also signify a fundamental shift in the direction of U.S. monetary policy, especially a significant turning point for the cryptocurrency market.
1 Why Hassett? Three aspects to interpret the logic behind the selection of the new Federal Reserve chief.
Trump's choice of Hassett is not a random decision, but based on a series of careful considerations.
First, Hassett's stance on cryptocurrencies is very clear and proactive. He not only holds over $1 million in Coinbase stock but also served on an advisory committee established by the exchange. This open attitude towards crypto assets is particularly critical in the current political environment.
Secondly, Hassett's views on interest rate policy are unequivocal. He has publicly expressed support for 'immediate interest rate cuts' and even leans towards a larger cut of 50 basis points, which completely aligns with Trump's call to lower interest rates.
Thirdly, Hassett's economic philosophy is highly aligned with Trump's. From being the architect of the 2017 tax cut bill to now being Trump's most trusted economic advisor, Hassett has proven himself to be someone who 'shares the same pants' with the president.
This close relationship means that if he takes the helm of the Federal Reserve, he will be more actively aligned with the White House's economic agenda, rather than maintaining some distance like Powell.
2 The market pricing logic has changed, and the Federal Reserve's policy is about to shift.
The market has already begun to price in the possibility of Hassett taking office. Since he became the leading candidate at the end of November, the market's expectation for interest rate cuts has significantly heated up.
The core of this change is that if Hassett takes office, he will overturn the Federal Reserve's current 'hawkish neutral' stance, replacing it with 'policy-embedded easing expectations'. This means that the probability of continuing to cut rates in the second half of 2025 is not a slight increase, but a structural rise.
Wall Street traders have already been building significant short-term curve positions linked to the secured overnight financing rate (SOFR), betting that the Federal Reserve's pace of monetary easing will accelerate.
But there is a key point that is often misunderstood: interest rate cuts do not equal infinite liquidity injection. The real liquidity shock may essentially be fully released around May next year, and subsequent interest rate cuts are more about 'policy confirmation' and 'emotional endorsement', rather than bringing about a new round of massive liquidity.
In other words, the first half of 2026 will be driven by liquidity expectations in pricing, while the second half will be driven by political cycles and policy directions in valuation. The market always speculates on expectations rather than reacting only after policies are fully implemented.
3 Concerns in the bond market and opportunities in crypto, the divergent fates of different markets.
Hassett's potential appointment means starkly different prospects for different markets.
In the bond market, Wall Street's main concern is that Hassett may carry out indiscriminate rate cuts to please the White House. If short-term rates are forced down while inflation remains above target, it could trigger a selling wave in long-term bonds, similar to the 'Truss moment' caused by former UK Prime Minister Truss.
Since Hassett became the frontrunner at the end of November, the yield on the 10-year U.S. Treasury bond has shown a selling trend, reflecting this concern.
In contrast, for the cryptocurrency market, Hassett taking office could bring a positive environment.
His long-standing tolerance for asset prices (as reflected in his book 'Dow 36,000') and his advocacy for deregulation are expected to provide a more friendly regulatory environment for digital assets. The market even believes there is an implicit 'Hassett put option', meaning that the Federal Reserve is more inclined to support asset prices through liquidity in times of crisis.
At the same time, the Federal Reserve's potential interest rate cut cycle often benefits cryptocurrencies like Bitcoin. Historical data shows that when major central banks begin a easing cycle, Bitcoin often experiences significant increases, as concerns about 'fiat currency depreciation' drive up demand for alternative assets.
4 Concerns about independence and reform opportunities, the Federal Reserve faces multiple challenges.
If Hassett takes charge of the Federal Reserve, the biggest point of contention may be the potential threat to central bank independence.
Since the beginning of this year, he has repeatedly followed Trump in criticizing the Federal Reserve for its slow pace of interest rate cuts. More concerning is that when Trump fired the Bureau of Labor Statistics director due to downward revisions of employment data, Hassett expressed support and publicly questioned the fairness of the official data.
This behavior has raised concerns that if he takes charge of the Federal Reserve, monetary policy could be influenced by politics. The market fears a repeat of the tragedy of former Federal Reserve Chairman Arthur Burns in the 1970s, where yielding to White House pressure to cut rates led to runaway inflation.
However, on the other hand, the Federal Reserve does indeed urgently need reform. In recent years, the institution has repeatedly faced setbacks in analysis, forecasting, policy execution, and communication, severely damaging its reputation. A Gallup poll in October showed that only 9% of Americans believe the Federal Reserve is doing an 'excellent' job.
If Hassett takes office, he may need to promote a series of reforms, including adjusting the inflation target statement, optimizing the dot plot release mechanism, updating balance sheet management, etc. The long-term impact of these changes may be far more profound than just simple interest rate cut decisions.
Looking ahead, if Hassett is officially nominated, he will face a subtle 'shadow chair' period. Even if Powell is still in office, the market will pay more attention to every remark from Hassett, which may lead to a prolonged five-month special power transition period, easily causing confusion in market expectations.
For investors, the key is to recognize that the market in the first half of the year will be driven by liquidity expectations, while in the second half it will be revalued by political cycles and policy directions. In this transition, cryptocurrencies may become one of the biggest beneficiaries, as they benefit from both a loose liquidity environment and a friendly regulatory attitude towards emerging asset classes.
The turnover in the Federal Reserve's leadership may just be beginning, but its impact will be profound and lasting. Follow Xiang Ge to learn more first-hand information and precise points about the cryptocurrency circle, becoming your navigation in the crypto world, as learning is your greatest wealth!#巨鲸动向 #美联储降息 $ETH
