"Shadow Fed Chair" Hassett speaks out: The Fed should cut rates next week, expects 25 basis points

By: Zhao Ying

Source: Wall Street Insight

Hassett said the Federal Reserve should cut interest rates at its upcoming meeting next week, expecting a 25 basis point reduction. This comes as Trump prepares to nominate a new Fed chair, sharply increasing market attention on the direction of monetary policy.

On Thursday, Kevin Hassett, dubbed the "shadow Fed chair" and Director of the White House National Economic Council, said in a Fox News interview that based on recent statements from Fed governors and regional Fed presidents, "they now seem more inclined toward rate cuts." He emphasized his long-term desire to "achieve lower interest rates" and stated that if the market consensus settles on a 25 basis point cut, "I would accept it."

Earlier this week, Trump indicated he plans to announce the Fed chair nominee in early 2026 and has already narrowed down to final candidates. He has recently praised Hassett publicly multiple times and hinted at his potential nomination during White House events. If the nomination proceeds, Trump allies are discussing having Treasury Secretary Beeson concurrently assume Hassett’s current role.

However, Deutsche Bank believes that even if Hassett is appointed, actually implementing rate cuts will face significant obstacles. By mid-2026, U.S. economic fundamentals may not support substantial rate reductions, and internal hawkish resistance within the Fed could prevent aggressive easing.

Long-Term Easing Goals vs. Short-Term Realities

In the interview, Hassett clearly expressed his long-term goal of achieving lower interest rates, while also showing pragmatism. He stated that if the Federal Open Market Committee reaches consensus around a 25 basis point cut, he would be willing to accept that level.

When asked how many additional rate cuts he would pursue if nominated, Hassett avoided specifying a number, stressing that the Fed chair's role is to be "highly data-sensitive" and must consider the impact of rate adjustments on inflation and employment. This response reflects his attempt to balance policy preferences with central bank independence.

Nomination Process Accelerating

Trump has recently sent frequent signals indicating Hassett may receive the nomination. During a White House event on Tuesday, Trump publicly said, "I think we have someone here who could be a potential Fed chair—I don't know who else can say that—potential. He's a respected man, I can tell you that. Thank you, Kevin."

Hassett himself remains cautious about the prospect, saying, "The president is considering several candidates, and it's an honor to be mentioned alongside some outstanding individuals. We'll see how it turns out." Trump has stated he will announce the final choice in early 2026.

Market Expectations Face Reality Check

Deutsche Bank has warned against overly optimistic market sentiment regarding a dovish shift. The bank notes that by mid-2026, U.S. economic fundamentals may not support large-scale rate cuts, and hawkish members on the Fed committee will likely pose resistance.

Investors should beware of overpricing aggressive monetary easing. Deutsche Bank believes the actual policy path is likely to be far more moderate and neutral than current market expectations, and even if Hassett takes office, his policy implementation will face multiple real-world constraints.