President Donald Trump has drawn a line in the sand for whoever he nominates to lead the Federal Reserve: support for immediate interest rate cuts is not optional—it's mandatory. The declaration, made public through a Truth Social post and confirmed in subsequent interviews, has sent ripples through financial markets and raised fresh concerns about the future independence of America's central bank.

"Anyone who disagrees with cutting rates during good economic times will never become the Chairman of the Federal Reserve!" Trump posted on December 23, eliminating any ambiguity about the criteria he's using to select his nominee.

The Two Kevins: Hassett vs. Warsh

According to Trump himself, the choice has narrowed to two candidates—both named Kevin:

  • Kevin Hassett: Current National Economic Council Director, seen as the frontrunner with a 58% probability on prediction market Kalshi
  • Kevin Warsh: Former Fed Governor, trailing at 25% odds but viewed by some as more credentialed for the role

In an interview with the Wall Street Journal, Trump referred to his finalists as "the two Kevins," indicating he's likely to make his selection public in early 2026. Fed Chair Jerome Powell has just three meetings left before the end of his term, making the transition planning increasingly urgent.

Hassett's Delicate Balancing Act

Kevin Hassett has emerged as the favorite in part because of his close relationship with the president—the same quality that's now generating pushback from high-level Trump allies worried about market perceptions.

The concern is straightforward: if bond markets view the next Fed Chair as "too much in Trump's pocket," long-term yields could rise sharply on fears that inflation won't be adequately controlled. That outcome would undermine the very goal Trump is pursuing—lower borrowing costs for businesses and consumers.

Hassett has attempted to address these concerns publicly. Appearing on "Face the Nation," he stated unequivocally that the Fed's job "is to be independent." When pressed about whether the president's views would carry weight in policy decisions, Hassett was direct: "No, no, he would have no weight."

"The Fed's job is to be independent. The president would have no weight in policy decisions."

— Kevin Hassett, National Economic Council Director

The Independence Question

Hassett's assurances notwithstanding, the explicit "litmus test" requirement from Trump has alarmed economists and market observers who view Fed independence as crucial to controlling inflation and maintaining dollar stability.

The concern isn't entirely theoretical. History provides examples of central banks that lost credibility by appearing politically captured—and the economic consequences were often severe. Turkey's experience in recent years, where presidential pressure contributed to spiraling inflation, serves as a cautionary tale.

Bank of America CEO Brian Moynihan recently warned that "the market will punish" any perceived threat to Fed independence, a message that appears to have registered with at least some in Trump's orbit.

Warsh: The Establishment Alternative

Kevin Warsh offers a different profile. As a former Fed Governor who served during the 2008 financial crisis, he brings institutional credibility that Hassett lacks. His academic credentials and Wall Street connections have made him a favorite among traditional Republican economic circles.

However, Warsh has been less publicly aligned with Trump's economic agenda, which may explain his second-place position in the race. The president's emphasis on loyalty and ideological alignment appears to favor Hassett, despite the potential market risks.

What's at Stake for Markets

The Fed Chair appointment matters enormously for investors. The central bank's decisions on interest rates directly impact:

  • Stock market valuations, particularly for growth stocks sensitive to discount rates
  • Bond prices across the yield curve
  • Mortgage rates and housing affordability
  • Dollar strength relative to other currencies
  • Corporate borrowing costs and capital investment decisions

A Fed Chair perceived as prioritizing political goals over price stability could trigger significant market volatility. Conversely, a nominee who can credibly maintain independence while working constructively with the administration could provide continuity and stability.

The Timeline Ahead

Trump has indicated he expects to announce his choice in early 2026, giving markets time to digest the selection before Powell's term expires. The Senate confirmation process will provide another opportunity to assess the nominee's commitment to independent monetary policy.

For now, the CNBC Fed Survey shows most respondents believe Trump should nominate someone other than Hassett—a reflection of market nervousness about independence concerns. Whether that sentiment influences the final decision remains to be seen.

The Bottom Line

The selection of the next Fed Chair represents one of the most consequential economic decisions of Trump's second term. The explicit requirement that nominees support rate cuts has heightened scrutiny of whoever gets the nod, ensuring that every statement and action will be parsed for signs of political influence.

For investors, the key is monitoring not just who gets selected, but how markets react—and whether the new Chair can thread the needle between working with the administration and maintaining the credibility that gives Fed policy its power.