FED: Powell's Time Looks Up, Replacement Could Be Less Willing To Cut Rates?

With Jerome Powell's term as Fed Chair up in May 2026, attention now turns to his replacement under the incoming Trump administration as it looks unlikely he will get another term. Scott Bessent - who runs Key Square Group, a macro fund, and as an economic advisor to Trump is considered a leading candidate for Treasury Secretary under the new administration - made some noteworthy comments about the future Fed chair this morning on CNBC, including the notion that a new Fed chair could theoretically be more hawkish on rates than Powell.

• While Bessent wasn't necessarily speaking in an official capacity, his comments not only largely cemented the idea that Powell would be replaced, but that his successor could be named relatively early:
  • "I think we nominate the next Federal Reserve chair very early... one of the sources of the Great Inflation of 2022 was Jay Powell was the latest appointment of this century and you have to ask the Biden people why they waited so late - he was not renominated until the end of November 2021, confirmed in December 2021, and then began hiking rates in March of '22. If they had re-appointed him...6 months earlier, he could have gotten started sooner." (Powell has previously said he'd stay for his full term as Chair so Bessent's scenario could become awkward.)
• Interestingly Bessent implied that Powell's policy priorities could shift now that he no longer had to seek reappointment: "President Trump has already said he's not going to renominate Jay Powell, so in a way that increases his independence...he's not gunning for a reappointment."
• Regarding ex-Fed Governor Kevin Warsh, who the CNBC host categorized as "not dovish", Bessent suggested that the Powell Fed's decision to cut 50bp in September had backfired, and that only once inflation was back to target via "good policy" would it be prudent to initiate an easing cycle:
  • "I think it's how do we define dovish, because Jay Powell did what I thought was an inappropriate jumbo rate cut in September, and look what dovish got us: exclude the move in the bond market today, but a dovish Fed raised the 10Y rate by 70 basis points... That's not dovish, they're actually tightening financial conditions at the 10 year end which is what drives a lot of capital formation for businesses, and mortgages... I think we have some great candidates including Kevin Warsh. Sometimes holding short-term rates brings long-term rates down. So I don't think someone who is cut, cut cut on the short end, and two, we can get in an equilibrium where Trump 1.0 was very disinflationary... around the target of 2... and if you can get inflation back to target through good policy, then I think you can get into a proper easing cycle that any Fed chair would push for."
• As MNI noted earlier today, we expect the rise in long end breakeven inflation and real yields since the September FOMC to be a key question for Powell at Thursday's press conference.