President Donald Trump on Friday said he would like to keep his top economic adviser, Kevin Hassett, at the White House rather than potentially nominating him to replace Federal Reserve Chair Jerome Powell, whose term ends May 15.
Speaking at a White House event, Trump made the comments after he saw Hassett in the audience. Trump told Hassett, “I actually want to keep you where you are, if you want to know the truth,” and added, “I just want to thank you, you were fantastic on television the other day.”
The remarks, while not described as clearly definitive, have disrupted expectations about the White House’s search for a new Fed chair, a post described as one of the most powerful financial jobs in the world. The comments boosted prospects for Kevin Warsh, a former Fed governor and a top contender for the role.
Hassett has generally been viewed as the front-runner in the race to replace Powell, in part because Hassett has worked for Trump since the president’s first term. Last month, Trump referred to Hassett as a “potential Fed chair,” according to the report.
Powell’s chair term will end May 15, though he could take the unusual step of remaining on the board as a governor after that. Trump appointed Powell in 2018, but later soured on him for raising the Fed’s key interest rate that year.
Warsh’s candidacy has also likely gained momentum from the Justice Department’s subpoenas of the Federal Reserve, which were described as occurring last week and revealed Sunday in a video statement from Powell. The report said Powell charged that the subpoenas were essentially punishment for the central bank’s refusal to lower interest rates as sharply as Trump would like.
The inquiry is described as a first for a sitting Fed chair, and it prompted pushback on Capitol Hill. The report said Republican senators dismissed the idea that Powell could have committed a crime, and it said the subpoenas were tied to testimony Powell gave last June before the Senate Banking Committee that touched on a $2.5 billion building renovation project.
The subpoenas have intensified concerns in the Senate that the Trump administration is seeking to undermine the Fed’s independence from day-to-day politics, analysts said in the report. Those concerns could affect the prospects for Hassett, the report said.
In a client note, Krishna Guha of investment bank Evercore ISI wrote that the developments were “making it harder to confirm Hassett, who is distinctively close to the president.” Guha also wrote that “Warsh is trusted by Senate Republicans and would be much easier to confirm.”
The report also noted that Warsh has historically been known as a “hawk,” or someone who traditionally supports higher interest rates to ward off inflation, contrasting that label with a “dove,” who prefers lower borrowing costs to spur hiring and growth.
Market moves described in the report reflected shifting expectations. The yield on the 10-year Treasury note rose Friday to just above 4.2% from about 4.17% Thursday, and the report said the increase likely reflected a sense that Warsh’s chances had improved, making the Fed less likely over time to cut rates than it would under a Hassett chairmanship.