December 10, 2025 • 21 mins
On Wednesday, the Federal Open Market Committee cut rates by 25-basis points. It was the scenario a lot of close watchers of the Federal Reserve expected — but what comes after this Fed Meeting is an open question.
With President Trump poised to name Chair Jerome Powell’s replacement by early 2026, both markets and the Federal Reserve itself could start to look to Trump’s nominee for guidance. Kevin Hassett has emerged as the front-runner for the role, who currently serves as director on Trump’s Council of Economic Advisers.
On Today’s Big Take podcast, Bloomberg Economics’ Chief US Economist Anna Wong joins host Sarah Holder to break down the economic impact of the latest rate cut and what the Federal Reserve could look like next year if Hassett is nominated to succeed Powell.
Read more: Fed Cuts Rates With Three Dissents, Projects One Cut in 2026
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:09):
Good afternoon, My colleagues and I remain squarely focused on
achieving our dual mandate goals of maximum employment and stable
prices for the band.
Speaker 3 (00:17):
On Wednesday, the Federal Open Market Committee cut rates by
twenty five basis points.
Speaker 2 (00:23):
Today, the Federal Open Market Committee decided to lower our
policy interest rate by quarter percentage point.
Speaker 3 (00:29):
It was the scenario a lot of close watchers of
the Federal Reserve expected, including Anna Wong, the chief US
economist for Bloomberg Economics.
Speaker 4 (00:39):
I think the takeaway is that Chair Powell really believed
that the economy needs another cut.
Speaker 3 (00:45):
Anna says that even though people saw the cut coming,
it wasn't a foregone conclusion.
Speaker 4 (00:51):
We knew going in that the FOMC is very divided.
We have twelve regional Fed presidents and more than half
of them think that holding the rates constant is the
wiser course of action.
Speaker 1 (01:05):
And we see that in the dot plot.
Speaker 4 (01:07):
With all these silent descents, we know that the majority
basically of the FOMC Committee would have preferred holding rates constant.
So the person that really changed this course of action
or pushed for this twenty five basis point cut is Powell.
Speaker 3 (01:27):
This could be the last Federal Reserve meeting where Powell
will have that kind of sway. Here's President Trump hinting
at the next FED chair nominee in a press conference
from early December. I guess the potential FED chair is
here too.
Speaker 4 (01:41):
I don't know we're allowed to say potential.
Speaker 3 (01:44):
Trump has said that he and Treasury Secretary Scott Bessant
will name the next Federal Reserve Chair by early next year.
That person will replace Powell when his term is up
in May, and recently Kevin Hassett has emerged as the
front runner. He currently served as director on Trump's Council
of Economic Advisors.
Speaker 1 (02:03):
Is a respected person that I can tell you.
Speaker 4 (02:06):
Thank you, Kevin.
Speaker 3 (02:10):
I'm Sarah Holder, and this is the big take from
Bloomberg News today on the show, what the Fed's latest
decision says about the state of the economy and the
state of the FED itself.
Speaker 2 (02:28):
At today's meeting, the Committee decided to lower the target
range for the federal funds rate by a quarter percentage
point to three and a half to three and three
quarters percent. In the near term, Risks to inflation are
tilted to the upside, and risks, risks to employment to
the downside, a challenging situation.
Speaker 3 (02:46):
And what will this cut mean for the economy, How
will it affect the labor market, affect inflation? What could
we see from here?
Speaker 4 (02:56):
So the transmission of monetary policy is both short and
along at the same time, it is very fast in
supporting the economy in a couple of sectors. So in
industrial or production it takes only two to three months
before the rake cut will start causing some turnaround. Part
of the economy that reacts very quickly to rick cuts
(03:18):
is the housing market. And this fall so far the
housing market has been quite weak, and so that should
also start turning around within the next six months. So
I think a cut will only pour a little bit
of fuel onto the stock market. And we're going to
see easier financial conditions. And as of now, financial conditions
(03:40):
is already providing about zero point nine percentage point GDP
support in the next twelve months. Crucially, what the FEDS
signal for the path of rake cuts next year will
decide whether you know, the easy financial conditions will add
even more to the economy more than zero or point
nine percentage point as it shows now next year.
Speaker 3 (04:03):
This twenty five basis point cut follows two other small
cuts at the last two FED meetings. What do these
incremental reductions say about the strategy the FED is currently
pursuing and might moving forward.
Speaker 4 (04:16):
I think at each point of these twenty five basis
point cut the FED thought, Okay, I'm just going to
do one and then we'll wait a bit. But what
happened is that after each one of them, the incoming
data keep telling them that they need to do more,
and so even after this twenty five basis point cut,
we are still seventy five basis point to one hundred
(04:39):
basis point away from the neutral. I mean, it depends
on who you ask. The neutral could be two point
seventy five percent or three percent. So there's actually room
to cut for another three to four twenty five basis
point cuts. So it could be that the FED may
return to that pattern we have seen in the last
two meetings that even though projecting that they will only
(05:01):
do one or two more cut next year, they would
feel the need to do more as the data comes
in the next few months.
Speaker 3 (05:09):
There was so much discussion during the government shutdown about
how the government data blackout would impact the fedibility to
gauge both inflation and employment. Did that ultimately impact their
ability to assess the health of the economy right now?
How much did that data disruption factor into what we're
seeing today?
Speaker 1 (05:29):
It definitely did.
Speaker 4 (05:31):
So. BLS just announced a series of revision to their
data release schedule, and it looks like that for a
whole slew of indicators there will never be an October number.
Speaker 1 (05:42):
Wow.
Speaker 4 (05:43):
So it's not just the unemployment rate, and not just
for the CPI but also explore import prices PPI, all
sorts of data. There's not going to be ever an
October number.
Speaker 3 (05:57):
And how significant is that? How big of a black
hole of knowledge loss is that?
Speaker 4 (06:03):
Well? So, for example, had the schedule been normal, had
there not been a government shutdown, then the Fed would
have had the November non farm payroll data before this
December meeting. They would have had a couple CPIPPI data
before this meeting, and they have none of that. So
(06:24):
we are going to be getting the non farm payrolls
data next week, which is abnormal, right, and it would
be a dual payroll data really, so we will get
both October and November numbers. They are going into this
December cut with more faith in Powell's read of the economy.
(06:45):
He really cares about the Beige Book. The Beige Book
traditionally has been a very good barometer of the labor market,
and the Beige Book has suggested that, in fact, maybe
about half of the districts are seeing flat to declining employment.
And that was also the same source that shaped his
(07:06):
view last fall in September of twenty twenty four, where
he pushed for a fifty basis point cut. So I
think that his takeaway of the economy is that the
labor market needs support from monetary policy.
Speaker 3 (07:20):
So we know what data they didn't have, but what
data did they have and what was that telling them?
Speaker 4 (07:25):
They rely more than usual on the ADP data, and
the ADP data had been very weak, and I think
the Fed staff has a very good grasp of what
the ADP data show and does not show, and where
the biases are.
Speaker 1 (07:41):
But I think generally.
Speaker 4 (07:43):
It is the ADP data is also consistent with all
these other private sector payrolls data, like you know, Gusto
into it.
Speaker 1 (07:55):
Revealio. You know there's now.
Speaker 4 (07:57):
A whole bunch of firms that provide s to mist
for NFP and all those said that negative job growth
happened in November, So that should be concerning, right, especially
if it agrees with the signal from the Beige Book,
which is also that half of the districts are seeing
flat to declining job growth.
Speaker 3 (08:16):
We didn't see consensus today, right. We saw two officials
descent in favor of holding rates. We saw Stephen Myron
descent in favor of a fifty basis point cut. Is
this a departure from the norm we've seen under Powell?
Is it the end of an era?
Speaker 4 (08:30):
It probably is an end of an era, because I
think every time a new FED chair enters, he needs
to build trust and credibility and a sense of camaraderie
with the rest of the fomc Ellen green Span had
a lot of soft power in the nineteen nineties, but
when you read the historical transcript you could see that
(08:53):
in fact, there were a lot of disagreement. Disagreement behind
closed doors are very common. Where it's differs is whether
these guys also openly dissent, because open dissension is a
sign that the FED chairman is not able to exercise
the soft power.
Speaker 3 (09:14):
We talk about the other challenges facing the next FED
chair and how Kevin Hassett might approach them if chosen
to replace Powell. After the break, President Trump and Treasury
(09:34):
Secretary Scott Besson are expected to announce a pick for
the next FED chair by early next year. That person,
if confirmed by the Senate, will replaced Jerome Powell when
his term finishes in May. Kevin Hassett, one of Trump's
top economic advisors, has emerged as the front runner, and
Bloomberg Economics Chief US economist Anna Wong is very familiar
(09:57):
with Kevin Hassett's work, has it personally You both worked
on the Council of Economic Advisors during the first Trump term,
and you also spoke with him last month at the
Bloomberg Insights and Innovation Summit in Washington, d C. So
what should we know about Hassett's qualifications for the job?
What do you think Trump sees in him?
Speaker 4 (10:18):
Well, in terms of his on paper qualification is very
similar to four other FEED chairs. So Jennett, Yellen, bernanke
Alan Greenspan were former CEA chairman, so that's quite similar.
And Arthur Burns also happened to be a CEA chairman.
But I think people's concern is that Kevin Hassett has
(10:40):
been an EC director role for most of this year,
and the job description of the NEC director is a
little bit like you're a salesman. You have to sell
the administration's policy. So in terms of how the world
understand him is they see it through his TV interviews
where he's basically selling the administration policies, and that's not
(11:04):
the job of the FED chairman. The FED chairman is
supposed to not sell anything, and you should come across
as a person who's a consensus builder and talk only
about data. The other side of Kevin, the off camera side,
is that he's actually very sensitive to data and he's
(11:26):
very good at tackling questions. When you work in the
policy world, you get these various stakeholders around the White
House and the Congress constantly bombarding you with economic questions
like what happened with this and that and that. So
he's actually very well rounded on all sorts of aspects
of the economy, and I think that gives him an
(11:49):
advantage in how to push the FED staff in incorporating
many things that typically Fed staff do not incorporate, for example, deregulation. Right,
how does the FED staff incorporate that I think barely,
because number one, they barely know what's going on with
deregulation policies, and number two, as a result, they don't
(12:12):
really have a strong view of how it should be
baked in. Kevin has a very strong view of where
that will enter. Basically, it should be lowering prices in it.
Speaker 1 (12:21):
And second of.
Speaker 4 (12:21):
All, a fiscal policy the impact of one big beautiful bill.
So at the end of the day, Kevin as a
tax economist, he is most passionate about text policy.
Speaker 1 (12:32):
He helped design.
Speaker 4 (12:33):
The text Cuts and Jobs Act, the One Big Beautiful Bill,
and the way that FED staff have traditionally incorporated the
economic impacts of these text policies.
Speaker 1 (12:44):
They're very skeptical.
Speaker 4 (12:45):
Of the growth enhancing impact of tax policy, and in
economist's term, you basically use a fiscal multiplier to decide
how much extra growth you can get from cutting corporate
tax right. I think my sense is that the FED
staff multiply estimate is at least maybe only one fourth
(13:06):
of what Kevin Hassett believes.
Speaker 3 (13:08):
I want to talk about some of those TV appearances
because I think they're kind of telling. You know, I've
heard Hassett praise Powell. He was on CNBC earlier this
week and said that the FED needs to follow the
data and not prematurely promise future rate cuts. For example,
it's not exactly in line with Trump's thinking or how
Trump has been talking about the economy and the FED
and your own Powell and interest rates. So how are
(13:30):
you reading Hassett's public remarks right now?
Speaker 4 (13:34):
Yeah, I mean, I think you noticed what I've noticed too,
which is that it seems like the way he talk
about FED rate cuts has shifted in the last five
days or so, and he's moving towards a more FED
chairman like way of talking about things to be cautious.
And I think you've heard in my interview with him
(13:54):
where he said I would not talk about whether inflation
is transitory. He also recently public remarks he declined to
say what FED funds rate should look like in six
months because he's not going to go out of a
limp to make a bold claim on what inflation is
and as not and what FED cuts would be. And
I thought that's a really new side of communication from him,
(14:17):
because we have not seen that prior to this week.
So I think he is transitioning to like conducting himself
more like a FED chairman.
Speaker 3 (14:26):
Well, there have been concerns about the future of FED
independence under a Trump appointed FED chair What do we
know about how Hassett would approach or has approached the
question of FED independence.
Speaker 4 (14:39):
So I think we should delineate the difference between FED
independence and FED accountability, because if you read and listen
to Kevin Hassett but also Steve Myron, they are both
strong believer of FED independence. They have supported it, they
have cited academic research of FED independence, but what efforts
(15:00):
in their view of FED independence that the FED also
needs to have accountability, and from their perspective, they think
that the FED really has dropped the ball on inflation
in the last four years. And also they perceived the
fifty bases point cut last fall as politically motivated, and
(15:20):
traditionally the FED institution, the staff is also left leaning,
so I think that fuels some suspicion from the administration
that this institution is full of deep state actors who's
trying to subvert what they're trying to do. So that's
why they feel like they need to send.
Speaker 1 (15:39):
Their own person in there.
Speaker 4 (15:41):
That type of thing in terms of risk for true
FED independence destruction where I would be worried if I
start seeing flimsy reasons for removing existing regional FED presidents,
because when we look at the current composition of it
is absolutely true that Trump has the regional Fed problem.
(16:05):
So of the two twelve regional Fed presidents, I counted
that nine of them are Hawks, and they are young Hawks,
they are going to be around until twenty thirties, and
the three Doves, two of them are retiring in twenty
twenty eight, so these are old Doves. I don't see
any legal means for removing current FED presidence unless they
(16:29):
pull a Bill Poulty on the regional Fed find some
trading scandals.
Speaker 1 (16:34):
It's kind of very easy to.
Speaker 4 (16:36):
Ding people for improper filing and that sort.
Speaker 3 (16:40):
Of stuff, like they did with Lisa Cook.
Speaker 4 (16:43):
With Lisa Cook, And while it's true that as the
chief regulator of banks and the financial market, you should
be squeaky clean, it's also it's very obvious what is
the motivation behind these investigations, And the optics also matter
for independence. So I think if Scott Besson pushes through
(17:06):
what he said he want to do, which is that
to from now on apply a three year residency requirement
for FED President and then they push it through Congress.
So that's completely legal. But if it start finding ways
to retroactively get rid of people, then I would be concerned.
Speaker 3 (17:25):
Are there concerns about how the FED would operate between
the announcement of the next FED chair and the end
of Powell's term? Would there be confusion in the markets,
for example, about which leader to turn to for guidance?
And how could you know whoever is chosen as the
next FED chair navigate that or temper that.
Speaker 4 (17:42):
So it depends, of course who the next FED chair is. Right.
So if Kevin has It is appointed to replace Adriana
Kugler's role, which is currently occupied by Steve Myron, he'll
be going in January or February, and Powell's term expart
in May, so there would be a couple months where
(18:03):
Powell would be a lame duck. So in that case,
whatever Powell give in terms of four guidance in each
of these FOMC meetings, financial markets would sort of discount
and rather that they would listen to Kevin has instead.
But I will also have to say that Kevin has
Its temperament is that he's very affable, and he actually
(18:27):
has a collegial relationship with Powell, and on top of that,
Kevin has it risked his own skin in preventing Powell
from being fired in twenty eighteen and twenty nineteen. I
think Kevin's personality and temperament would be that while he's
on the board and while Powell is the chairman, he
(18:49):
would not be like very combative, but he will be
vocal about his disagreement with Powell.
Speaker 3 (18:57):
Well, so, again, looking ahead to the next chair's term,
Trump has talked about getting interest rates below two percent,
even against this backdrop of what Powell has termed stubborn inflation.
If the next FED chair were to aggressively cut rates
to get us there, what do your model say and
about what that might mean for the economy.
Speaker 4 (19:18):
Yeah, so it would mean a temporary boom ahead of
the midterms and then perhaps even through some parts of
twenty twenty seven. This is assuming there's not this X
factor that somehow calms inflation down.
Speaker 3 (19:35):
And what would that X factor be?
Speaker 1 (19:37):
Productivity?
Speaker 4 (19:38):
Okay, So Kevin has it truly believed that there exists
this X vector. He has said that he believes productivity
will be four percent next year, because if he is right,
then even with GDP growth at over three percent would
not be inflationary because of that productivity growth. But traditional
economic models not assume this productivity growth, will say that
(20:03):
inflation will go about three percent or even three point
five percent by twenty twenty seven because traditional models do
not assume that there's this X factor, and the model
would say that the FED in that case will have
to hike at that time in twenty twenty seven. Otherwise
it would just keep drifting twour four percent and then
(20:23):
there will be a bust right before the presidential election
in twenty twenty eight, basically a bust from the end
of twenty twenty seven through twenty twenty eight.
Speaker 3 (20:38):
This is The Big Take from Bloomberg News. I'm Sarah Holder.
To hear Annawong's full interview with Kevin Hassett from the
Bloomberg Insights and Innovation Summit, go to Bloomberg dot com.
To get more from The Big Take and unlimited access
to all of Bloomberg dot Com. Subscribe today at Bloomberg
dot com slash podcast offer. If you liked this episode,
make sure to follow and review The Big Take wherever
(21:00):
you listen to podcasts. It helps people find the show,
Thanks for listening. We'll be back tomorrow.
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:09):
Good afternoon, My colleagues and I remain squarely focused on
achieving our dual mandate goals of maximum employment and stable
prices for the band.
Speaker 3 (00:17):
On Wednesday, the Federal Open Market Committee cut rates by
twenty five basis points.
Speaker 2 (00:23):
Today, the Federal Open Market Committee decided to lower our
policy interest rate by quarter percentage point.
Speaker 3 (00:29):
It was the scenario a lot of close watchers of
the Federal Reserve expected, including Anna Wong, the chief US
economist for Bloomberg Economics.
Speaker 4 (00:39):
I think the takeaway is that Chair Powell really believed
that the economy needs another cut.
Speaker 3 (00:45):
Anna says that even though people saw the cut coming,
it wasn't a foregone conclusion.
Speaker 4 (00:51):
We knew going in that the FOMC is very divided.
We have twelve regional Fed presidents and more than half
of them think that holding the rates constant is the
wiser course of action.
Speaker 1 (01:05):
And we see that in the dot plot.
Speaker 4 (01:07):
With all these silent descents, we know that the majority
basically of the FOMC Committee would have preferred holding rates constant.
So the person that really changed this course of action
or pushed for this twenty five basis point cut is Powell.
Speaker 3 (01:27):
This could be the last Federal Reserve meeting where Powell
will have that kind of sway. Here's President Trump hinting
at the next FED chair nominee in a press conference
from early December. I guess the potential FED chair is
here too.
Speaker 4 (01:41):
I don't know we're allowed to say potential.
Speaker 3 (01:44):
Trump has said that he and Treasury Secretary Scott Bessant
will name the next Federal Reserve Chair by early next year.
That person will replace Powell when his term is up
in May, and recently Kevin Hassett has emerged as the
front runner. He currently served as director on Trump's Council
of Economic Advisors.
Speaker 1 (02:03):
Is a respected person that I can tell you.
Speaker 4 (02:06):
Thank you, Kevin.
Speaker 3 (02:10):
I'm Sarah Holder, and this is the big take from
Bloomberg News today on the show, what the Fed's latest
decision says about the state of the economy and the
state of the FED itself.
Speaker 2 (02:28):
At today's meeting, the Committee decided to lower the target
range for the federal funds rate by a quarter percentage
point to three and a half to three and three
quarters percent. In the near term, Risks to inflation are
tilted to the upside, and risks, risks to employment to
the downside, a challenging situation.
Speaker 3 (02:46):
And what will this cut mean for the economy, How
will it affect the labor market, affect inflation? What could
we see from here?
Speaker 4 (02:56):
So the transmission of monetary policy is both short and
along at the same time, it is very fast in
supporting the economy in a couple of sectors. So in
industrial or production it takes only two to three months
before the rake cut will start causing some turnaround. Part
of the economy that reacts very quickly to rick cuts
(03:18):
is the housing market. And this fall so far the
housing market has been quite weak, and so that should
also start turning around within the next six months. So
I think a cut will only pour a little bit
of fuel onto the stock market. And we're going to
see easier financial conditions. And as of now, financial conditions
(03:40):
is already providing about zero point nine percentage point GDP
support in the next twelve months. Crucially, what the FEDS
signal for the path of rake cuts next year will
decide whether you know, the easy financial conditions will add
even more to the economy more than zero or point
nine percentage point as it shows now next year.
Speaker 3 (04:03):
This twenty five basis point cut follows two other small
cuts at the last two FED meetings. What do these
incremental reductions say about the strategy the FED is currently
pursuing and might moving forward.
Speaker 4 (04:16):
I think at each point of these twenty five basis
point cut the FED thought, Okay, I'm just going to
do one and then we'll wait a bit. But what
happened is that after each one of them, the incoming
data keep telling them that they need to do more,
and so even after this twenty five basis point cut,
we are still seventy five basis point to one hundred
(04:39):
basis point away from the neutral. I mean, it depends
on who you ask. The neutral could be two point
seventy five percent or three percent. So there's actually room
to cut for another three to four twenty five basis
point cuts. So it could be that the FED may
return to that pattern we have seen in the last
two meetings that even though projecting that they will only
(05:01):
do one or two more cut next year, they would
feel the need to do more as the data comes
in the next few months.
Speaker 3 (05:09):
There was so much discussion during the government shutdown about
how the government data blackout would impact the fedibility to
gauge both inflation and employment. Did that ultimately impact their
ability to assess the health of the economy right now?
How much did that data disruption factor into what we're
seeing today?
Speaker 1 (05:29):
It definitely did.
Speaker 4 (05:31):
So. BLS just announced a series of revision to their
data release schedule, and it looks like that for a
whole slew of indicators there will never be an October number.
Speaker 1 (05:42):
Wow.
Speaker 4 (05:43):
So it's not just the unemployment rate, and not just
for the CPI but also explore import prices PPI, all
sorts of data. There's not going to be ever an
October number.
Speaker 3 (05:57):
And how significant is that? How big of a black
hole of knowledge loss is that?
Speaker 4 (06:03):
Well? So, for example, had the schedule been normal, had
there not been a government shutdown, then the Fed would
have had the November non farm payroll data before this
December meeting. They would have had a couple CPIPPI data
before this meeting, and they have none of that. So
(06:24):
we are going to be getting the non farm payrolls
data next week, which is abnormal, right, and it would
be a dual payroll data really, so we will get
both October and November numbers. They are going into this
December cut with more faith in Powell's read of the economy.
(06:45):
He really cares about the Beige Book. The Beige Book
traditionally has been a very good barometer of the labor market,
and the Beige Book has suggested that, in fact, maybe
about half of the districts are seeing flat to declining employment.
And that was also the same source that shaped his
(07:06):
view last fall in September of twenty twenty four, where
he pushed for a fifty basis point cut. So I
think that his takeaway of the economy is that the
labor market needs support from monetary policy.
Speaker 3 (07:20):
So we know what data they didn't have, but what
data did they have and what was that telling them?
Speaker 4 (07:25):
They rely more than usual on the ADP data, and
the ADP data had been very weak, and I think
the Fed staff has a very good grasp of what
the ADP data show and does not show, and where
the biases are.
Speaker 1 (07:41):
But I think generally.
Speaker 4 (07:43):
It is the ADP data is also consistent with all
these other private sector payrolls data, like you know, Gusto
into it.
Speaker 1 (07:55):
Revealio. You know there's now.
Speaker 4 (07:57):
A whole bunch of firms that provide s to mist
for NFP and all those said that negative job growth
happened in November, So that should be concerning, right, especially
if it agrees with the signal from the Beige Book,
which is also that half of the districts are seeing
flat to declining job growth.
Speaker 3 (08:16):
We didn't see consensus today, right. We saw two officials
descent in favor of holding rates. We saw Stephen Myron
descent in favor of a fifty basis point cut. Is
this a departure from the norm we've seen under Powell?
Is it the end of an era?
Speaker 4 (08:30):
It probably is an end of an era, because I
think every time a new FED chair enters, he needs
to build trust and credibility and a sense of camaraderie
with the rest of the fomc Ellen green Span had
a lot of soft power in the nineteen nineties, but
when you read the historical transcript you could see that
(08:53):
in fact, there were a lot of disagreement. Disagreement behind
closed doors are very common. Where it's differs is whether
these guys also openly dissent, because open dissension is a
sign that the FED chairman is not able to exercise
the soft power.
Speaker 3 (09:14):
We talk about the other challenges facing the next FED
chair and how Kevin Hassett might approach them if chosen
to replace Powell. After the break, President Trump and Treasury
(09:34):
Secretary Scott Besson are expected to announce a pick for
the next FED chair by early next year. That person,
if confirmed by the Senate, will replaced Jerome Powell when
his term finishes in May. Kevin Hassett, one of Trump's
top economic advisors, has emerged as the front runner, and
Bloomberg Economics Chief US economist Anna Wong is very familiar
(09:57):
with Kevin Hassett's work, has it personally You both worked
on the Council of Economic Advisors during the first Trump term,
and you also spoke with him last month at the
Bloomberg Insights and Innovation Summit in Washington, d C. So
what should we know about Hassett's qualifications for the job?
What do you think Trump sees in him?
Speaker 4 (10:18):
Well, in terms of his on paper qualification is very
similar to four other FEED chairs. So Jennett, Yellen, bernanke
Alan Greenspan were former CEA chairman, so that's quite similar.
And Arthur Burns also happened to be a CEA chairman.
But I think people's concern is that Kevin Hassett has
(10:40):
been an EC director role for most of this year,
and the job description of the NEC director is a
little bit like you're a salesman. You have to sell
the administration's policy. So in terms of how the world
understand him is they see it through his TV interviews
where he's basically selling the administration policies, and that's not
(11:04):
the job of the FED chairman. The FED chairman is
supposed to not sell anything, and you should come across
as a person who's a consensus builder and talk only
about data. The other side of Kevin, the off camera side,
is that he's actually very sensitive to data and he's
(11:26):
very good at tackling questions. When you work in the
policy world, you get these various stakeholders around the White
House and the Congress constantly bombarding you with economic questions
like what happened with this and that and that. So
he's actually very well rounded on all sorts of aspects
of the economy, and I think that gives him an
(11:49):
advantage in how to push the FED staff in incorporating
many things that typically Fed staff do not incorporate, for example, deregulation. Right,
how does the FED staff incorporate that I think barely,
because number one, they barely know what's going on with
deregulation policies, and number two, as a result, they don't
(12:12):
really have a strong view of how it should be
baked in. Kevin has a very strong view of where
that will enter. Basically, it should be lowering prices in it.
Speaker 1 (12:21):
And second of.
Speaker 4 (12:21):
All, a fiscal policy the impact of one big beautiful bill.
So at the end of the day, Kevin as a
tax economist, he is most passionate about text policy.
Speaker 1 (12:32):
He helped design.
Speaker 4 (12:33):
The text Cuts and Jobs Act, the One Big Beautiful Bill,
and the way that FED staff have traditionally incorporated the
economic impacts of these text policies.
Speaker 1 (12:44):
They're very skeptical.
Speaker 4 (12:45):
Of the growth enhancing impact of tax policy, and in
economist's term, you basically use a fiscal multiplier to decide
how much extra growth you can get from cutting corporate
tax right. I think my sense is that the FED
staff multiply estimate is at least maybe only one fourth
(13:06):
of what Kevin Hassett believes.
Speaker 3 (13:08):
I want to talk about some of those TV appearances
because I think they're kind of telling. You know, I've
heard Hassett praise Powell. He was on CNBC earlier this
week and said that the FED needs to follow the
data and not prematurely promise future rate cuts. For example,
it's not exactly in line with Trump's thinking or how
Trump has been talking about the economy and the FED
and your own Powell and interest rates. So how are
(13:30):
you reading Hassett's public remarks right now?
Speaker 4 (13:34):
Yeah, I mean, I think you noticed what I've noticed too,
which is that it seems like the way he talk
about FED rate cuts has shifted in the last five
days or so, and he's moving towards a more FED
chairman like way of talking about things to be cautious.
And I think you've heard in my interview with him
(13:54):
where he said I would not talk about whether inflation
is transitory. He also recently public remarks he declined to
say what FED funds rate should look like in six
months because he's not going to go out of a
limp to make a bold claim on what inflation is
and as not and what FED cuts would be. And
I thought that's a really new side of communication from him,
(14:17):
because we have not seen that prior to this week.
So I think he is transitioning to like conducting himself
more like a FED chairman.
Speaker 3 (14:26):
Well, there have been concerns about the future of FED
independence under a Trump appointed FED chair What do we
know about how Hassett would approach or has approached the
question of FED independence.
Speaker 4 (14:39):
So I think we should delineate the difference between FED
independence and FED accountability, because if you read and listen
to Kevin Hassett but also Steve Myron, they are both
strong believer of FED independence. They have supported it, they
have cited academic research of FED independence, but what efforts
(15:00):
in their view of FED independence that the FED also
needs to have accountability, and from their perspective, they think
that the FED really has dropped the ball on inflation
in the last four years. And also they perceived the
fifty bases point cut last fall as politically motivated, and
(15:20):
traditionally the FED institution, the staff is also left leaning,
so I think that fuels some suspicion from the administration
that this institution is full of deep state actors who's
trying to subvert what they're trying to do. So that's
why they feel like they need to send.
Speaker 1 (15:39):
Their own person in there.
Speaker 4 (15:41):
That type of thing in terms of risk for true
FED independence destruction where I would be worried if I
start seeing flimsy reasons for removing existing regional FED presidents,
because when we look at the current composition of it
is absolutely true that Trump has the regional Fed problem.
(16:05):
So of the two twelve regional Fed presidents, I counted
that nine of them are Hawks, and they are young Hawks,
they are going to be around until twenty thirties, and
the three Doves, two of them are retiring in twenty
twenty eight, so these are old Doves. I don't see
any legal means for removing current FED presidence unless they
(16:29):
pull a Bill Poulty on the regional Fed find some
trading scandals.
Speaker 1 (16:34):
It's kind of very easy to.
Speaker 4 (16:36):
Ding people for improper filing and that sort.
Speaker 3 (16:40):
Of stuff, like they did with Lisa Cook.
Speaker 4 (16:43):
With Lisa Cook, And while it's true that as the
chief regulator of banks and the financial market, you should
be squeaky clean, it's also it's very obvious what is
the motivation behind these investigations, And the optics also matter
for independence. So I think if Scott Besson pushes through
(17:06):
what he said he want to do, which is that
to from now on apply a three year residency requirement
for FED President and then they push it through Congress.
So that's completely legal. But if it start finding ways
to retroactively get rid of people, then I would be concerned.
Speaker 3 (17:25):
Are there concerns about how the FED would operate between
the announcement of the next FED chair and the end
of Powell's term? Would there be confusion in the markets,
for example, about which leader to turn to for guidance?
And how could you know whoever is chosen as the
next FED chair navigate that or temper that.
Speaker 4 (17:42):
So it depends, of course who the next FED chair is. Right.
So if Kevin has It is appointed to replace Adriana
Kugler's role, which is currently occupied by Steve Myron, he'll
be going in January or February, and Powell's term expart
in May, so there would be a couple months where
(18:03):
Powell would be a lame duck. So in that case,
whatever Powell give in terms of four guidance in each
of these FOMC meetings, financial markets would sort of discount
and rather that they would listen to Kevin has instead.
But I will also have to say that Kevin has
Its temperament is that he's very affable, and he actually
(18:27):
has a collegial relationship with Powell, and on top of that,
Kevin has it risked his own skin in preventing Powell
from being fired in twenty eighteen and twenty nineteen. I
think Kevin's personality and temperament would be that while he's
on the board and while Powell is the chairman, he
(18:49):
would not be like very combative, but he will be
vocal about his disagreement with Powell.
Speaker 3 (18:57):
Well, so, again, looking ahead to the next chair's term,
Trump has talked about getting interest rates below two percent,
even against this backdrop of what Powell has termed stubborn inflation.
If the next FED chair were to aggressively cut rates
to get us there, what do your model say and
about what that might mean for the economy.
Speaker 4 (19:18):
Yeah, so it would mean a temporary boom ahead of
the midterms and then perhaps even through some parts of
twenty twenty seven. This is assuming there's not this X
factor that somehow calms inflation down.
Speaker 3 (19:35):
And what would that X factor be?
Speaker 1 (19:37):
Productivity?
Speaker 4 (19:38):
Okay, So Kevin has it truly believed that there exists
this X vector. He has said that he believes productivity
will be four percent next year, because if he is right,
then even with GDP growth at over three percent would
not be inflationary because of that productivity growth. But traditional
economic models not assume this productivity growth, will say that
(20:03):
inflation will go about three percent or even three point
five percent by twenty twenty seven because traditional models do
not assume that there's this X factor, and the model
would say that the FED in that case will have
to hike at that time in twenty twenty seven. Otherwise
it would just keep drifting twour four percent and then
(20:23):
there will be a bust right before the presidential election
in twenty twenty eight, basically a bust from the end
of twenty twenty seven through twenty twenty eight.
Speaker 3 (20:38):
This is The Big Take from Bloomberg News. I'm Sarah Holder.
To hear Annawong's full interview with Kevin Hassett from the
Bloomberg Insights and Innovation Summit, go to Bloomberg dot com.
To get more from The Big Take and unlimited access
to all of Bloomberg dot Com. Subscribe today at Bloomberg
dot com slash podcast offer. If you liked this episode,
make sure to follow and review The Big Take wherever
(21:00):
you listen to podcasts. It helps people find the show,
Thanks for listening. We'll be back tomorrow.
Hosts And Creators
Sarah Holder
Saleha Mohsin
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