By Ginika Igboke
President Donald Trump has narrowed his shortlist for the next chair of the Federal Reserve to two contenders—National Economic Council Director Kevin Hassett and former Federal Reserve Governor Kevin Warsh—a choice that could carry significant implications for Wall Street and monetary policy.
Trump said last week that Warsh surged to the top of the list after a 45-minute meeting on Dec. 10. However, Hassett soon regained momentum in prediction markets following public remarks underscoring the importance of Federal Reserve independence. On Kalshi and Polymarket, Hassett currently holds a 53 percent chance of being nominated.
Market participants are closely watching the decision, as financial markets could react quite differently depending on which candidate Trump selects, according to Tom Essaye, president and co-founder of the Sevens Report.
At the center of the debate between Hassett and Warsh, Essaye said, is the question of Fed independence. Hassett is widely seen as more dovish, potentially favoring sharper interest rate cuts, while Warsh is viewed as more cautious and methodical.
In a Dec. 16 interview on CNBC’s “Squawk on the Street,” Hassett voiced strong support for the central bank’s independence and emphasized consensus-building as essential to effective leadership.
“The Federal Reserve’s independence is really, really important,” Hassett said, adding that interest rate decisions should be driven by data and agreement within the Federal Open Market Committee.
For months, Trump has indicated he wants Powell’s successor to be more receptive to cutting interest rates and to consult with him on policy direction.
“I’m looking for somebody that will be honest with interest rates,” Trump said at a recent roundtable. “Our rate should be much lower.”
Inflation and Independence
Essaye argues that investors are less concerned with the abstract principle of independence than with inflation risks.
“Inflation is bad for bonds and bad for the economy,” he said, warning that a Fed chair who prioritizes presidential preferences could keep rates too low for too long, potentially reigniting inflation.
Some investors worry Hassett could mirror the approach of former Fed Chair Arthur Burns during the Nixon administration, when prolonged low rates and monetary expansion contributed to a surge in inflation.
Treasury Secretary Scott Bessent, speaking on Fox Business on Dec. 16, said the next Fed chair should have an open mind and be willing to challenge entrenched assumptions—particularly on inflation.
“Growth does not create inflation,” Bessent said. “Friction creates inflation when demand exceeds supply.”
Warsh has long called for major reforms at the Federal Reserve. In a July appearance on CNBC’s “Squawk Box,” he argued the institution relies on outdated models and governance structures, calling for a “regime change” in policy conduct.
“The credibility deficit lies with the incumbents that are at the Fed,” Warsh said, suggesting deeper structural issues extend beyond Chair Jerome Powell.
While some analysts believe policy direction could be less predictable under a Warsh-led Fed, he has publicly aligned with Trump’s view that interest rates should be lower.
“Run the printing press a little bit less, let the balance sheet come down, and you can have lower interest rates,” Warsh said in a Fox Business interview this summer.
At their final meeting of 2025, Fed officials voted 9–3 to cut interest rates for the third straight meeting by a quarter point. Looking ahead to 2026, policymakers currently anticipate just one additional cut.
Ultimately, the decision may come down to a classic divide between hawks and doves, according to Jan Szilagyi, CEO and co-founder of AI investment analytics firm Reflexivity.
“Hassett’s dovish stance includes public support for aggressive easing,” Szilagyi said. “Warsh’s background as a Fed governor from 2006 to 2011 gives markets confidence in his more measured approach.”
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