Bond markets are showing signs of unrest as Kevin Hassett, the National Economic Council director, is increasingly being seen as a potential candidate for the Federal Reserve chairmanship.
What Happened: Hassett’s chances of being nominated for the Federal Reserve chairmanship have seen a significant increase, from 30% at the end of November to 80% on Sunday, according to Polymarket data.
This surge in odds comes in the wake of President Donald Trump‘s comments that hinted at Hassett’s potential nomination. Hassett’s advocacy for aggressive rate cuts is well known.
The market’s reaction to these developments suggests that investors are wary of the prospect of a close Trump ally heading the central bank.
Bond yields have been on the rise since the increase in Hassett’s chances, indicating that investors are anticipating a possible resumption of interest rate hikes by the Fed in the future.
Experts are of the opinion that Hassett could aggressively lower borrowing costs to appease Trump, which could potentially set off inflation that the Fed would then have to counteract by tightening its policy.
While some investors are expressing their concerns about the potential impact of Hassett’s influence on rates, others argue that the Fed chief, being just one of the 12 voting officials on the Federal Open Market Committee, may face difficulties in persuading more hawkish members to adopt a dovish stance, reports the Insider.
Why It Matters: The potential nomination of Hassett for the Federal Reserve chairmanship is significant as it could lead to a shift in the Fed’s policy. His known support for aggressive rate cuts could lead to a change in the central bank’s approach towards managing inflation and economic growth.
This has led to unease in the bond markets, as investors anticipate a possible increase in interest rates in the future. The rise in bond yields is a clear indication of this apprehension.
Furthermore, Hassett’s close association with President Trump could potentially influence the Fed’s decisions, leading to a more aggressive approach towards lowering borrowing costs. This could trigger inflation, which the Fed would then have to counter by tightening its policy.
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