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

Written by: Zhao Ying

Source: Wallstreetcn

Hassett stated that the Federal Reserve should cut rates at next week’s meeting and expects a rate cut of 25 basis points. This comes as Trump is preparing to nominate a new Fed chair, drawing heightened market attention to the direction of monetary policy.

On Thursday, “Shadow Fed Chairman” and White House National Economic Council Director Kevin Hassett said in a Fox News interview that, judging by recent comments from Fed governors and regional Fed presidents, “they now seem more inclined to cut rates.” He emphasized his desire to “achieve lower rates in the long run” and said that if the market reaches a consensus on 25 basis points, “I would accept it.”

Earlier this week, Trump said he plans to announce his pick for Fed chair in early 2026 and has finalized the shortlist. He has recently praised Hassett multiple times and hinted at the possibility of his nomination at White House events. If the nomination moves forward, Trump allies are discussing having Treasury Secretary Bassent take over Hassett’s current position.

However, Deutsche Bank believes that even if Hassett takes office, actual rate cuts face significant obstacles. By mid-2026, US economic fundamentals may not support substantial rate cuts, and hawkish resistance within the Fed could make aggressive easing difficult to achieve.

Long-term Easing Goals vs. Short-term Reality

In the interview, Hassett made clear his long-term pursuit of lower interest rates but also demonstrated pragmatism. He said that if the FOMC reaches consensus on 25 basis points, he would be willing to accept that magnitude.

When asked how many additional rate cuts he would pursue if nominated, Hassett avoided giving a specific number, stressing that the Fed chair’s duty is to be “highly data-sensitive” and must consider the impact of rate adjustments on inflation and employment. This shows he is attempting to strike a balance between policy preferences and central bank independence.

Nomination Process Accelerates

Trump has recently sent frequent signals that Hassett may be nominated. At a White House event on Tuesday, Trump openly stated, “I think there’s a potential Fed chair here—I don’t know who can say that—potential. He’s a respected man, I can tell you that. Thank you, Kevin.”

Hassett himself has remained cautious about the nomination, saying, “The president is considering multiple candidates, and it’s an honor to be on the same list as some outstanding people. We’ll see what happens.” Trump has said he will announce the final pick in early 2026.

Market Expectations Face Reality Check

Deutsche Bank has cautioned against the market’s optimism about a “dovish pivot.” The bank pointed out that by mid-2026, US economic fundamentals may not support substantial rate cuts, and hawkish Fed committee members will also pose resistance.

Investors should be wary of overpricing aggressive monetary easing. Deutsche Bank believes the ultimate policy path will likely be much more moderate and neutral than markets expect, and even if Hassett takes office, policy implementation will face multiple real-world constraints.