Market Sentiment and Candidate Preferences
Prediction markets indicate a strong inclination towards Kevin Hassett becoming the next Federal Reserve chair, following his naming as a potential candidate by President Donald Trump. This development highlights a critical juncture for monetary policy, especially as the Federal Open Market Committee approaches its December meeting.
Divergent Views Reflected in Prediction Markets
Data from Polymarket shows a significant split among traders regarding the potential next Fed chair. Hassett emerged as the leading candidate with 72 percent of the bets, followed by Kevin Warsh at 15 percent, Christopher Waller at 6.2 percent, and Scott Bessent at 2.9 percent. Similar trends were observed on Kalshi, where Hassett held 74 percent of the odds, with Warsh at 15 percent and Christopher Waller at 9 percent. These figures underscore the market's assessment of each candidate's potential approach to interest rates and liquidity, with Hassett's perceived inclination towards faster rate cuts drawing particular attention, especially in light of President Trump's advocacy for lower rates even when inflation remained above the target.
Hassett's Background and Market Expectations
Kevin Hassett's close association with President Trump suggests a potential alignment between White House objectives and market expectations for monetary policy. Hassett previously served as the chair of the Council of Economic Advisers and currently leads the National Economic Council. He has publicly stated that he would advocate for immediate rate cuts if he were in Jerome Powell's position.
This stance echoes President Trump's persistent criticism of Powell's perceived slow approach to easing monetary policy. It also aligns with Trump's assertion that increased tariffs would not lead to a resurgence of high inflation.
Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics, suggests that Hassett would likely favor lower interest rates, though perhaps not at the pace desired by President Trump. Gagnon posits that Hassett might leverage arguments related to deregulation and the advancements in artificial intelligence to contend that the economy has sufficient capacity for expansion without triggering significant inflation risks.
Prior to his roles in the White House, Hassett had a distinguished career in economic policy and academia. He spent many years at the American Enterprise Institute focusing on tax and trade policy, while also holding academic positions at Columbia Business School and conducting research at the Federal Reserve. This extensive background positions him as one of the most qualified contenders for the role.
Alternative Perspectives from Other Contenders
Kevin Warsh's support in prediction markets reflects an interest in a candidate who might advocate for more aggressive balance-sheet reduction. His hawkish economic stance appeals to traders who prioritize tighter liquidity conditions.
Christopher Waller is viewed by some as a continuity candidate, potentially favoring a gradual approach to easing monetary policy, which could offer greater predictability for the markets. Scott Bessent, on the other hand, is seen as an unconventional choice who might promote easier liquidity and a more market-responsive policy framework.
Each of these candidates presents a distinct policy direction at a time when the Federal Reserve faces the challenge of balancing a softening labor market with inflation that remains above the 2 percent target. It is anticipated that the next Fed chair will encounter similar economic pressures, irrespective of their personal policy preferences. However, reports indicate that some banking executives and asset managers have expressed concerns to the Treasury Department that Hassett might push for indiscriminate rate cuts that disregard inflation trends.
Concerns Regarding Federal Reserve Independence
The Federal Reserve's independence has come under increased scrutiny due to President Trump's past actions, including his attempt to remove Governor Lisa Cook and shorten Chair Jerome Powell's term. These events have raised legitimate questions about the potential for political influence on monetary policy decisions. Nevertheless, the structural framework of the Federal Reserve, which requires majority approval from its 12-member committee, including four governors appointed by President Biden, limits the scope of unilateral control.
The leading position of Kevin Hassett in prediction markets underscores the market's perception of a connection between the Fed chair selection process and competing monetary strategies. The diverse policy approaches offered by Warsh, Waller, and Bessent maintain focus on how the next Fed chair could influence interest rates, liquidity, and balance-sheet management. This divergence in expectations highlights the significant impact President Trump's upcoming decision is likely to have on financial markets in the coming months.