Investors are getting nervous about Trump’s likely pick for next Fed boss

• Investors are skittish about the potential for Trump ally Kevin Hassett to lead the Fed.

• There are worries that Hassett could cut rates to please Trump even if inflation drifts higher.

• Yields have spiked in the last week after Hassett became the frontrunner for the next Fed boss.

Jerome Powell still has a few months left to serve as Federal Reserve chairman, but markets are already thinking about the likely next central bank boss — and moves in the bond market show they’re feeling nervous.

National Economic Council director Kevin Hassett shot to the top of the list of likely next Fed chiefs in the last week. The odds of his nomination on Polymarket went from about 30% at the end of November to 73% on Friday.

Donald Trump, who has long pressured Powell to lower interest rates, seemed to suggest Hassett was in the lead when referring to the economist at a White House event on Wednesday. Hassett has been a vocal proponent of rate cuts and suggested that he would support slashing rates aggressively.

“I guess a potential Fed Chair is here too, I don’t know, are we allowed to say that? Potential. He’s a respected person, that I can tell you. Thank you, Kevin,” the president said.

The reaction in markets has been subtle, but clear: investors aren’t thrilled that a close Trump ally could lead the central bank.

Bonds have sold off since Hassett’s chances have increased. Since Bloomberg reported he was the frontrunner last Tuesday, the 10-year US Treasury yield has climbed 11 basis points.

Hassett is widely expected to continue his campaign for rate cuts, but bond yields aren’t moving lower on the prospect as might be expected.

The rise in yields suggests investors expect the Fed could resume hiking interest rates down the line. The calculus here is that Hassett could lower borrowing costs aggressively to please Trump, stoking fresh inflation that the Fed will eventually have to respond to by tightening policy once again.

“That’s basically because we know that Kevin Hassett is very, very loyal to President Trump,” Michael Brown, a senior research strategist at Pepperstone, said of the recent move in bond yields. “It is almost solely on the back of Hassett, given that we’ve had nothing really else to trade on this week.”

Brown also pointed to a recent decline in the US Dollar Index, which has dropped from 99 to 98 since Bloomberg published its report. That’s another signal investors are worried about inflation and its implications on the US economy, considering that the dollar typically trades in tandem with Treasury yields, he said.