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In recent developments, Kevin Hassett, a former economic adviser to Donald Trump, expressed support for the Federal Reserve’s decision to significantly cut its main interest rate by half a percentage point last month. He justified this reduction due to indicators of a weakening job market. His remarks were part of an interview with the Financial Times’ “Unhedged” newsletter, where he explained that the rate reduction was a logical step based on available data suggesting a marked economic slowdown.
Hassett’s position contrasts with Trump’s criticism of the Federal Reserve during a talk at the Detroit Economic Club. Trump contended that the interest rate was lowered too quickly, alleging it was a politically motivated attempt to depress borrowing costs to favor his political opponent, Kamala Harris.
Hassett, currently a fellow at Stanford University’s Hoover Institution and former chair of the council of economic advisers during Trump’s presidency, remains within Trump’s circle. He is considered a potential candidate for a top position, potentially as the head of the Federal Reserve, if Trump secures a victory over Harris in the upcoming election. It’s anticipated that Trump would appoint a new Fed chair after the current chair, Jay Powell, completes his term in 2026.
Historically, Trump has been outspoken in his criticism of Powell, even describing him as a greater adversary than China’s President Xi Jinping, due to Powell’s reluctance to reduce interest rates in 2019. Earlier this year, Trump cautioned Powell against rate cuts before the presidential election.
Hassett agreed with the notion that the Fed has acted politically in recent years, citing a rate hike in December 2016 prior to Trump taking office, as evidence of less than optimal independence. He also referenced the Fed’s inaction following a fiscal policy expansion under a complete Democratic government.
Despite concerns over potential interventions in the Fed’s independence, Hassett dismissed the notion that Trump would seek to undermine it in a potential second term. He expressed confidence that President Trump values central bank independence but also desires to have an influence and appoint those who maintain true independence.
The Federal Reserve has consistently denied any assertion that U.S. monetary policy decisions are politically driven. Following last month’s half-point cut, it is anticipated that the Fed will implement smaller, quarter-point reductions in the coming months after signs of labor market recovery. Reflecting on the September rate cut, Hassett acknowledged that, in hindsight, the decision may not have been ideal.
