Bond investors warned US Treasury over picking Kevin Hassett as Fed chair

Bond investors have told the US Treasury they are concerned about Kevin Hassett’s potential appointment as Federal Reserve chair, worrying he will cut interest rates aggressively to please President Donald Trump.

The Treasury department solicited feedback on Hassett and other candidates in one-on-one conversations with executives at major Wall Street banks, asset management giants and other big players in the US debt market, according to several people familiar with the conversations.

The discussions took place in November, before Treasury secretary Scott Bessent held his second round of interviews with candidates to replace Jay Powell as Fed chair when his term expires in May 2026, these people said.

The Treasury said it “regularly engages with a variety of market participants and investors on important developments and dynamics in the Treasury market and broader financial markets”.

It added: “During discussions with key stakeholders, the expected distribution of market outcomes across several asset classes for the five potential Federal Reserve chairs was extremely narrow.”

Hassett, the White House’s top economic official, has emerged as a frontrunner for the position in recent weeks, as Trump and Bessent have whittled down the list of potential candidates from 11 initial contenders.

Trump on Tuesday said he planned to name his pick for Fed chair “early” next year, and signalled Hassett was a “potential” contender. The US dollar briefly slipped on the president’s mention of Hassett.

The White House told the Financial Times that “the president will continue to nominate the most qualified individuals to the federal government, and until an announcement is made by him, any discussion about potential nominations is pointless speculation”.

The Treasury added that it was “confident that [Trump’s] selection will serve the American people well”.

The doubts among market participants about Hassett reflect a broader anxiety on Wall Street about the transition at the Fed’s helm as Trump prepares to nominate a new leader of the central bank. Some senior bond market participants would have preferred other candidates such as BlackRock’s Rick Rieder and Fed governor Christopher Waller who were seen as more independent from Trump than Hassett.

Several of the market participants the Treasury contacted said they were worried about Hassett’s alignment with Trump, who has insisted rates should be cut sharply and has called Powell a “stubborn mule” for the central bank’s decision to only modestly lower borrowing costs this year.

The bankers and investors were worried that Hassett could agitate for indiscriminate rate cuts even if inflation continues to run above the Fed’s 2 per cent target, according to three people familiar with the conversations.

“No one wants to get Truss-ed,” said one market participant, referring to the shock in the UK bond market in 2022 triggered by the then-prime minister Liz Truss’s plans for unfunded tax cuts.

The prospect of a dovish Fed chair was viewed as particularly worrisome to the big bond managers in the event that inflation in the US rises next year. The Fed’s preferred inflation gauge registered 2.7 per cent in August.

The combination of loose monetary policy and higher inflation could ignite a sell-off in long-term Treasuries, said one market participant.

Some market participants were also unconvinced Hassett would be able to win round a divided Fed board and corral consensus on rate decisions, the people added. 

Among the array of participants in those conversations were members of the group of Wall Street bond titans who make up the Treasury Borrowing Advisory Committee, which counsels Bessent on market and issuance questions, according to two people familiar with the matter.

When Hassett, a career economist whose work has focused on tax policy, met with TBAC earlier this year, he spent little time talking about markets, instead pitching White House priorities, including a discussion about Mexican drug cartels, these people said.

A Washington insider, Hassett served as a senior economic adviser on the presidential campaigns of John McCain, George W Bush and Mitt Romney, before joining the White House during Trump’s first term as chair of the Council of Economic Advisers.

He also worked at the conservative think-tank the American Enterprise Institute — and at the Fed, where staffers who worked with him remember him as ambitious. 

Robert Tetlow, a senior policy adviser who recently left the Fed, said Hassett struck him as “smart, eloquent and self-assured”. 

However, concerns abound that his closeness to a president who has spent the past year attacking the US central bank will threaten the institution’s independence. 

“Kevin Hassett is more than capable of doing the job of Fed chair, it’s just a question of who shows up,” said Claudia Sahm, a former Fed economist who is now chief economist at New Century Advisors. “Is it the Kevin Hassett who is the active participant in the Trump administration? Or Kevin Hassett the independent economist?” 

John Stopford, head of managed income at asset manager Ninety One, added: “I think the market sees him as a Trump stooge which erodes the Fed’s credibility at the margin.”

Additional reporting by Ian Smith in London