Fed, Trump slams brakes on Hassett - race for governor reopened

"I would like to keep Kevin Hassett where he is, if you want to know the truth. I would lose him and that is a concern for me." Thus Donald Trump praises his economic adviser who is one of the Fed's nominees for president. "We'll see how it goes," he added referring to the nomination process for the next central bank president, in a statement that does not definitively close the door on Hassett replacing Jerome Powell. Hassett's stock price at the helm of the central bank has recently dropped: investors consider him too close to Trump and his proximity could penalise him if confirmation of Trump's nomination to the Fed turns into a referendum on central bank independence in Congress.

After President Trump said he would prefer to keep Hassett in his role as chief economic adviser, former Federal Reserve Governor Kevin Warsh has jumped into the lead in the race for the central bank presidency, according to traders at Kalshi, a market forecasting platform. Warsh is now well ahead of main rival Hassett.

But indices on Wall Street went negative after Trump announced that he wants to 'keep Hassett where he is'. Markets see Hassett as more accommodative and Warsh as more 'hawkish'. Warsh has often mentioned the inflation risk associated with an accommodative monetary policy. Moreover, he has expressed scepticism towards aggressive Quantitative easing. In contrast, Hassett actively supports deeper rate cuts to stimulate growth and employment.

Trump's attempt to fill Fed vacancies is already encountering obstacles in the Senate, which must confirm the president's nominees. Senator Thom Tillis, a key Republican on the Banking Committee, has vowed to oppose any of the president's picks until the conclusion of the Justice Department's investigation into the Fed. Other Republican senators also rejected the investigation against Powell.

The decision to subpoena the Fed has dramatically escalated the Trump administration's battle with the institution over its policy decisions. Powell condemned the investigation as a thinly veiled attempt by the White House to undermine the central bank's independence. Administration officials defended the enquiry as a necessary step to ensure the proper management of public funds.