"Shadow Fed Chair" Hassett speaks out: The Federal Reserve should cut interest rates next week, expecting a 25 basis points reduction

Hassett stated that the Federal Reserve should cut interest rates at next week's meeting, expecting a reduction of 25 basis points. Currently, as Trump prepares to nominate a new Federal Reserve Chair, market attention on the direction of monetary policy has surged.

On Thursday, "shadow Fed Chair" and White House National Economic Council Director Kevin Hassett, in an interview with Fox News, said that based on recent statements from Federal Reserve governors and regional Fed presidents, "they now seem more inclined to cut rates." He emphasized his desire to "achieve lower interest rate levels" in the long term and stated that if the market reaches a consensus on a 25 basis point cut, "I would accept it."

Earlier this week, Trump indicated that he plans to announce the Federal Reserve Chair nominee in early 2026 and has identified the final candidates. He has publicly praised Hassett multiple times recently and hinted at his potential nomination during White House events. If the nomination proceeds, Trump's allies are discussing having Treasury Secretary Mnuchin concurrently hold Hassett's current position.

However, Deutsche Bank believes that even if Hassett takes office, there will be significant obstacles to actually implementing rate cuts. By mid-2026, the fundamentals of the U.S. economy may not support substantial rate cuts, coupled with hawkish resistance within the Federal Reserve, making aggressive easing policies difficult to achieve.

Long-term Easing Goals vs. Short-term Realities

Hassett clearly expressed his long-term pursuit of lower interest rate levels during the interview, while also demonstrating a pragmatic attitude. He stated that if the Federal Open Market Committee reaches a consensus around a 25 basis point cut, he would be willing to accept that magnitude.

When asked how many additional rate cuts he would pursue if nominated, Hassett avoided specific numbers, emphasizing that the role of the Federal Reserve Chair is to be "highly sensitive to data" and to consider the impact of rate adjustments on inflation and employment. This statement indicates his attempt to seek a balance between policy inclination and central bank independence.

Accelerating Nomination Process

Trump has recently frequently signaled that Hassett may receive the nomination. At a White House event on Tuesday, Trump publicly stated, "I think there is a potential Federal Reserve Chair here, I don't know who can say that—potential. He is a respected person, I can tell you that. Thank you, Kevin."

Hassett himself has maintained a cautious attitude toward the nomination, stating, "The president is considering multiple candidates, and it is an honor to be on the same list as some excellent individuals. We will see how it turns out." Trump has indicated that he will announce the final candidate in early 2026.

Market Expectations Face Reality Check

Deutsche Bank has issued a warning regarding the market's optimistic sentiment about a "dovish turn." The bank pointed out that by mid-2026, the fundamentals of the U.S. economy may not support substantial rate cuts, and hawkish members within the Federal Reserve Committee will also pose resistance.

Investors should be wary of overpricing aggressive easing monetary policies. Deutsche Bank believes that the ultimate policy path is likely to be much more moderate and neutral than the market expects, and even if Hassett successfully takes office, his policy implementation will be constrained by multiple realities