How Much Could the Next Fed Chair Slash Interest Rates?

The Federal Reserve's next leader will inherit a delicate balancing act—and the power to move trillions.

The Rate-Cut Conundrum

Markets obsess over every basis point. The incoming chair's real test won't be if they can cut, but by how much without re-igniting the very inflation they spent years battling. It's a classic case of the cure potentially being worse than the disease—a scenario Wall Street analysts love to model while collecting hefty fees.

Beyond the Dot Plot

Forward guidance and balance sheet runoff become the new levers. The real question shifts from the size of cuts to their speed and sequencing. Can they engineer a soft landing, or will aggressive easing simply pump air into the next asset bubble?

The next chair won't just set rates—they'll set the tone for a decade of capital allocation. Let's see if monetary policy can outmaneuver the law of unintended consequences, again.

Key Takeaways

• Kevin Hassett, the front-runner to take over as Fed chair in May, has advocated for sharply lower interest rates but could face pushback putting that agenda into practice.
• The 12-member Federal Open Market Committee votes on rate cuts and has many members who are skeptical about lowering interest rates too much.
  

Kevin Hassett, the frontrunner to take over the Federal Reserve chair position, WOULD push for lower interest rates—but it's uncertain whether he would be able to get them.

Hassett, currently a top economic advisor to President Donald Trump, is widely expected to be Trump's nominee to replace current Chair Jerome Powell when his term ends in May. Hassett has consistently advocated for the Federal Open Market Committee to lower its key interest rate significantly.

Most recently, he said there was "plenty of room" to lower rates in the months ahead at a Wall Street Journal CEO Council event on Tuesday. However, it's unclear how much he would be able to bend the Fed's policy committee to his way of thinking.

"The Chair does not have unbounded power to push the Committee in whatever direction he chooses," economists at Deutsche Bank, led by chief economist Matthew Luzzetti, wrote in a commentary.

Hassett would take over at the Fed at a crucial moment for monetary policy: The central bank is torn between the two halves of its dual mandate from Congress to keep inflation low and employment high.

Members of the 12-person committee that votes on interest rates have been divided about whether to keep the fed funds rate higher for longer to battle inflation, or lower it to boost the economy and help the job market. Some see the job market, which has been faltering lately, as the greatest concern, while others are more worried about inflation that has run above the Fed's target of a 2% annual rate since 2021.

What This Means For The Economy

Hassett would likely push for much lower interest rates, which could supercharge economic growth—but could also worsen inflation. Given skepticism among the Fed's other leaders about steep rate cuts, it's more likely the Fed will lower rates only moderately next year.

The Fed is widely expected to lower the rate by a quarter-point on Wednesday, bringing it to a range of 3.5 to 3.75%, a fresh low since November 2022. The fed funds rate influences borrowing costs on short-term loans—easier money helps encourage spending and can boost the economy but at the risk of stoking inflation.

How Much Would Hassett Push To Lower Rates?

At the Journal event, Hassett said the Fed should lower interest rates by more than a quarter-point. Among the FOMC members, only fellow TRUMP appointee Fed Governor Stephen Miran has advocated for steep rate cuts, arguing the unorthodox position that Trump's economic policies will significantly lower inflation in the year ahead.

Trump has frequently pushed the Fed to lower interest rates sharply, criticizing Powell for not doing so. The president has said he would only nominate a Fed chair who would cut rates.

At the Journal event, Hassett said he would make decisions based on economics and independently from Trump's wishes.

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Several Obstacles Stand In Hassett's Way

It's not certain that Hassett will be Trump's nominee. Trump is considering Hassett, along with three other finalists, and is beginning a final round of interviews this week, the Financial Times reported on Tuesday.

“We’re going to be looking at a couple different people, but I have a pretty good idea of who I want," Trump told reporters on Air Force One after the initial report.

If Trump nominates Hassett, he would then have to be confirmed by the Senate to take his place on the FOMC.

If he is confirmed, he would still have to convince a majority of the committee to vote along with him. His recent criticism of the Fed for not cutting rates could work against him, Luzzetti wrote.

"As a vocal critic of Fed policy recently, he might find it initially challenging to convince his colleagues to bring rates meaningfully lower," he wrote. "As has been observed with Governor Miran, other officials might be sceptical of forward-looking arguments that rely heavily on the administration's policies bringing inflation closer to target."

Another potential obstacle: Jerome Powell, who could choose to stay on as a rank-and-file member of the committee after his term as chair ends. Powell has advocated a cautious approach toward rate cuts.

All in all, Hassett would bring more "dovish" leadership to the Fed but would face challenges cutting rates too sharply.

"Hassett could prove more effective if he moved toward the center of the Committee and tried to build a consensus around a more moderate policy path, such as moving a bit faster towards neutral," Luzzetti wrote.