Strongly supporting "insiders" to carry out reforms: "Shadow Fed Chair" Hassett backs Bessen, sets residency requirements for regional Fed presidents

Although he has not yet truly taken the helm, Trump's chief economic advisor Hassett has already hinted at supporting "insiders" and aims to reform the Federal Reserve from within.

On Friday, December 5th, Eastern Time, Kevin Hassett, the Director of the White House National Economic Council, expressed support during a media interview for the new rules proposed by U.S. Treasury Secretary Mnuchin regarding the selection of regional Federal Reserve presidents, which require candidates to have resided in their respective districts for at least three years. This is the latest move by the Trump administration to reshape the Federal Reserve.

Mnuchin announced on Wednesday that he would push for the new rules and accused the Federal Reserve of "function creep" beyond monetary policy. On Friday, Hassett stated that the original intention of establishing regional Federal Reserves was to ensure that the concerns of different regions within the federal system have a voice at the decision-making table.

Hassett also reiterated that the Federal Reserve should continue to cautiously lower interest rates at next week's FOMC meeting. He expects an economic boom in 2026, with productivity growth potentially reaching 4%. This statement comes as the market is highly focused on personnel changes at the Federal Reserve, with Hassett seemingly becoming the "shadow Fed chair." Media reports last week indicated that Hassett is the top candidate to replace Fed Chair Powell.

Regional Federal Reserve Reform Draws Attention

Hassett criticized the "unfortunate" aspect of the current design of the Federal Reserve, which is that only personnel from Washington and New York consistently have voting rights on interest rate decisions. He revealed that he has discussed changing this situation with Mnuchin but added, "I don't think this requires firing any existing personnel."

When asked whether the residency requirement guidelines would "interfere" with the term approval in February, Hassett stated, "This is something I have not yet discussed with everyone." He also did not clarify whether Trump plans to veto candidates for the Federal Reserve chair who have not resided in their district for three years.

Under the current system, the U.S. President has no statutory influence over the appointment of regional Federal Reserve presidents. The boards of directors of the regional Federal Reserves, composed of individuals outside the financial industry, nominate their respective district's Federal Reserve president, who is then approved by the Federal Reserve Board of Governors.

Unlike the appointment of the Federal Reserve Chair, candidates for regional Federal Reserve presidents do not require confirmation from the U.S. Senate, nor do they need to be nominated by the President.

Mnuchin hinted on Wednesday that the Federal Reserve Board of Governors could directly state: if a candidate has not resided in the district for three years, they could refuse to approve their nomination.

The term for regional Federal Reserve presidents is five years, with re-confirmation required every five years. The current term will expire in February next year. Hassett did not disclose on Friday whether he has discussed with President Trump how the new rules might affect the approval of the regional Federal Reserve president's term in February.

Reiterating Rate Cut Expectations

Hassett stated that Federal Reserve decision-makers should lower interest rates at next week's meeting. He said:

"Now is a good time for the Federal Reserve to cautiously lower interest rates again."

Hassett expects a boom in the U.S. economy in early 2026, due to the rebound from the recent federal government shutdown and the results from new factories coming online. He also predicts that investments in artificial intelligence (AI) will drive a surge in productivity He said, "Given the pace of AI's accelerated development, I believe productivity could grow by 4% next year." The speed of AI's application in the economy is "far faster" than the wave of internet and computer proliferation in the 1990s. The United States has not seen a 4% annual productivity increase since 1999, except for data distortions caused by significant economic downturns in 2009 and 2020.

Hassett stated that unless a "black swan" event disrupts, 2026 "will be one of the golden years in economic history." He mentioned that if the economy grows by 3% in the first and second quarters of next year, he would feel "disappointed," as the growth rate could easily be another percentage point higher.

Prospects for Nomination Emerge

Hassett has recently been frequently mentioned by Trump. At a White House event on Tuesday, Trump publicly stated, "I think there is a potential Federal Reserve Chair here—he is a respected person, I can tell you. Thank you, Kevin."

Wallstreetcn previously mentioned that media learned on Thursday that Trump administration aides and allies are discussing having Bessenet simultaneously lead the White House National Economic Council if Hassett is appointed as Federal Reserve Chair. This arrangement would make Bessenet the sole leader of Trump's economic policy, with authority spanning the Treasury Department and the White House.

Trump has stated that he will announce the Federal Reserve Chair nominee in early 2026. Any nominee must receive Senate confirmation for the chair position, and if they have not previously served as a governor, they must also receive confirmation for the governor position