What does it mean if the 'Loyal Hassett' becomes the Chairman of the Federal Reserve?

Deutsche Bank believes that if Hassett takes office as the Chairman of the Federal Reserve, his policy path may be more hawkish or neutral than expected in the early stages to establish credibility and gain internal consensus. Bets on an immediate shift to large-scale monetary easing by the Federal Reserve face significant uncertainty.

According to news from the trading desk, on December 3rd, Deutsche Bank's research team pointed out in a report that although Trump hopes to push for interest rate cuts by appointing the "loyal" Hassett as the Chairman of the Federal Reserve, there are numerous obstacles to actual implementation.

The report indicates that by mid-2026, the fundamentals of the U.S. economy may not support significant interest rate cuts, coupled with hawkish resistance within the Federal Reserve Committee, making aggressive monetary easing difficult to achieve.

Deutsche Bank emphasizes the need to be wary of the market's overly optimistic pricing regarding a "dovish turn," as the ultimate policy path is likely to be much more moderate and neutral than expected.

"Loyal" Hassett

Although President Trump has not officially announced it, the current Director of the National Economic Council, Hassett, has become a popular candidate to succeed Powell. Deutsche Bank believes that from the perspective of the Trump administration, Hassett's advantages are evident.

First, Hassett's core label is "loyalty."

For the past decade, he has been a loyal economic advisor to President Trump. It is well-known that Trump is disappointed with the monetary policy decisions made during Powell's tenure.

Therefore, by choosing Hassett, Trump can be more confident that there will be a strong voice advocating for low interest rates within the Federal Reserve.

Hassett holds a Ph.D. in economics, has worked in the research department of the Federal Reserve for five years, and has held positions at think tanks such as the American Enterprise Institute (AEI) and served as the Chairman of the Council of Economic Advisers (CEA) during Trump's first term, making him well-qualified.

Second, Hassett has the image of a "reformer outsider."

Although he has experience working at the Federal Reserve, he is now seen more as an outsider who can bring a new perspective. This aligns perfectly with the recent call from U.S. Treasury Secretary Mnuchin for an "honest, independent, and nonpartisan review" of all activities related to the Federal Reserve's monetary policy, regulation, communication, staffing, and research.

From the perspective of the Trump administration, having an "outsider" like Hassett lead this review is clearly more appropriate than an insider from the Federal Reserve.

The Difficult Road to Interest Rate Cuts: Three Major Challenges Facing the New Chairman

However, appointing a chairman inclined towards interest rate cuts does not mean that cuts can be smoothly implemented. The report emphasizes that if Hassett wants to pursue aggressive easing policies, he will face at least three major challenges:

Difficulty in Achieving Internal Consensus:

• The new chairman typically needs to demonstrate to the market a commitment to maintaining price stability. Given the U.S. government's public call for lower interest rates, this requirement is particularly important during the current transition period.
• The new chairman also needs to work to position himself at the core of the committee to facilitate consensus formation. This means Hassett may need to abandon the most aggressive interest rate cut proposals.

Economic Fundamentals Constraints:

• By mid-2026, the economic fundamentals themselves may not support interest rate cuts. The U.S. economy is expected to continue robust growth, with limited downside risks in the labor market, while inflation rates will remain slightly above target levels

Committee Composition is Hawkish:

• Among the regional Federal Reserve presidents with voting rights in 2026, there are many hawkish figures, including Hammack from the Cleveland Fed, Logan from the Dallas Fed, and Kashkari from the Minneapolis Fed, the latter even voted against the rate cut in October.
• A more disruptive possibility is that current Chairman Powell may follow the precedent of Marriner Eccles and continue to serve as a regular governor after stepping down as chairman next May. If Powell makes this decision out of concern for the independence of the Federal Reserve, he will become a strong resistance to Hassett's push for aggressive easing policies.

Overall, Deutsche Bank believes that given the risks facing the current U.S. economy, almost no one on the Federal Reserve Committee would agree to take a clear easing stance, as this contradicts the Federal Reserve's statutory dual mandate of achieving maximum employment and price stability. If Powell indeed chooses to remain as a governor, this challenge will become even more daunting.

Therefore, if Hassett wants to make an impact, a more effective approach would be to align with the committee's moderate stance and build consensus around a more gradual policy path, such as "moving towards the neutral interest rate at a slightly faster pace," rather than making a complete dovish shift.

The research report emphasizes that for the market, this means the anticipated "rate cut feast" is unlikely to arrive, and policy adjustments will be gradual and restrained.