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Donald Trump has played down the chances he will nominate Kevin Hassett as the next Federal Reserve chair, dealing a blow to the National Economic Council director, who had been considered the frontrunner.
The president said on Friday that the prospect of Hassett leaving his role as a White House adviser was a “serious concern”, sending the odds of his main rival Kevin Warsh taking the Fed job surging on betting markets.
“I see Kevin [Hassett] in the audience and I just want to thank you, you were fantastic on television today,” Trump said at a White House event. “I actually want to keep you where you are if you want to know the truth.”
“Kevin Hassett is so good. I’m saying wait a minute. If I move him . . . I would lose you. It’s a serious concern for me,” the president added. “We’ll see how it all works out.”
The comments mark the latest upset in the race to lead the Fed, as tensions between the Trump administration and the US central bank flare amid a Department of Justice investigation into chair Jay Powell and his handling of a $2.5bn renovation project. Powell’s term as chair ends in May.
Traders pared back their bets on the odds of interest rate cuts on the prospects of a Warsh nomination. The two-year Treasury yield and the dollar index — both highly sensitive to interest rate expectations — rose after the news.
Market expectations for two quarter-point rate cuts from the Fed this year fell, with traders ascribing a roughly 85 per cent chance to something that had been viewed as a near certainty, according to futures contracts.
“Warsh is now frontrunner, and he’s not perceived as much of a dove as Hassett,” said Francesco Pesole, an FX strategist at ING.
The odds of Warsh, a former Fed governor, being nominated for the position rose as high as 60 per cent on Polymarket following the remarks, while Hassett’s odds plunged.
Trump allies and Fed analysts said the president’s shift appeared to be driven by the Powell investigation, which has triggered a backlash even in the president’s Republican Party. Several key senators have indicated they would withhold their support for his nominee for the next Fed chair until the probe is ended.
Krishna Guha at Evercore ISI said the fallout had made “it harder to confirm Hassett, who is distinctively close to the president” and suggested it was a “plausible reason” for backing Warsh instead.
“Warsh is trusted by Senate Republicans and would be much easier to confirm,” said Guha, a former New York Fed official. “At a minimum, if Trump reverts to Hassett, he will likely need to delay any announcement until he has de-escalated the situation with Powell enough to calm the Senate Banking Committee.”
Steve Bannon, Trump’s former chief strategist, said the political ramifications of the probe had all but killed Hassett’s candidacy.
“The Fed chair’s unified front with the anti-Trump Senate cabal make anyone close to the president virtually impossible to confirm,” he said.
The US Treasury did not respond to a request for comment.
The administration has sought to distance itself from the Powell investigation amid the turmoil. Hassett himself, who earlier in the week voiced support for the investigation, on Friday downplayed it as a “simple request for information”.
“The bottom line is . . . Jay is a good man,” he told Fox Business Network. “I expect that there’s nothing to see here, that the cost overruns are related to things like asbestos, as he says. But I sure wish they had been more transparent.”
Additional reporting by Ian Smith and Claire Jones in London