A potential nominee for Federal Reserve chairman under President Trump said he would convey the president’s views to Fed officials for their consideration, but they have the right to refuse to take these opinions into account when making interest rate decisions.

Draw the red line

Kevin Hassett said last Sunday (December 14) that he would continue to communicate with Trump if he became chairman of the Federal Reserve. But when asked whether Trump's views on interest rates would carry "equal weight" with those of other members of the Fed's interest rate-setting committee, Hassett replied, "No, his opinions will not carry weight."

Hassett continued, “His point of view only matters when it is reasonable and based on data, and then when you report to the committee that the president has put forward this argument, I think it is a very persuasive argument, what do you think? If the committee does not accept it, they will vote differently.”

Hassett's remarks came as reports surfaced that Trump was conducting final interviews with potential successors to current Federal Reserve Chairman Jerome Powell. Trump emphasized that his nominee must significantly lower the current key interest rate, explicitly stating his desire to reduce it to 1% or lower—a view shared by virtually no economists. Trump's public statements have raised concerns about whether the Federal Reserve can maintain its tradition of independence from daily political interference, regardless of who he appoints as chairman.

The clash between pressure and tradition

Prior to Trump's first election as president in 2016, for decades presidents from both parties avoided publicly commenting on Federal Reserve decisions and typically avoided private intervention. Economists generally believe that a politically independent Federal Reserve is more effective at curbing inflation because it can take unpopular measures to suppress prices, such as raising interest rates.

However, last Friday, Trump stated that he "should certainly communicate with any Fed official on interest rates." He said, "I have accomplished a great deal, amassed a huge fortune, and had a very successful career, and I believe my opinions should be heard."

The Wall Street Journal reported last Friday that Kevin Warsh, a fellow at the Hoover Institution, a conservative think tank, and a former Federal Reserve governor, is currently Trump's top choice to succeed Powell, whose term ends next May. However, Trump had previously hinted that he might choose Hassett.

Trump told the Wall Street Journal, "I think both Kevins are excellent."

Hassett emphasized in an interview last Sunday: "Ultimately, the Fed's responsibility is to maintain its independence."

He added, "The final decision is made by a committee vote, and I'm willing to talk to the president every day until the end of my life—because the process is enjoyable."

The US dollar received brief support.

Hassett's remarks provided an "independent firewall" for the dollar in the short term, offsetting some of the negative impact caused by concerns about the politicization of the Federal Reserve and providing support for the dollar.

However, this has not fundamentally eliminated the new variable of political pressure. The future trend of the US dollar will depend on: 1. the independence practices of the final chairperson; 2. the degree of deviation between actual policy decisions and data; and 3. the persistence of political interference. The market will shift from a "panic selling of the dollar" mode to a "cautious observation and high volatility" mode, and any new information regarding the chairperson or political interference may trigger sharp fluctuations.

During Monday's Asian trading session, the US dollar index rebounded by 0.1% to 98.48 at one point, but has since given back its gains and is trading around 98.34.

Analysts point out that the risk balance has shifted from "certain negative factors" to "uncertainty game," with short-term sentiment favoring the US dollar, but long-term structural risks rising.



(US Dollar Index Daily Chart, Source: FX678)

At 10:43 Beijing time, the US dollar index is currently at 98.34.