Treasuries gained ground as the 10-year yield reached 4% for the first time in a month, following the emergence of Kevin Hassett, the White House National Economic Council Director, as the leading candidate to become the next chair of the Federal Reserve. This shift in sentiment among traders has sparked increased speculation around future interest rate cuts, anticipating that Hassett would advocate for the aggressive reduction in borrowing costs that President Donald Trump has been promoting.
The market witnessed a dip in yields across various maturities, with the benchmark 10-year yield declining by two basis points to 4%. This marks the lowest yield since the Federal Reserve’s late October meeting. Insider reports suggest that Trump’s advisers view Hassett as the frontrunner to succeed Jerome Powell as the Fed chair, a development that has substantial implications for monetary policy.
According to Jordan Rochester, head of macro strategy at Mizuho in London, the expectations surrounding Hassett’s potential appointment signal a weaker U.S. dollar and a trend towards lower short-term rates from the Fed’s May meeting onward. Despite being regarded as a credible economist with past experience at the Fed, some critics point to his close ties with Trump, casting doubts on his independence.
In response to the news surrounding Hassett, the dollar initially fell to a session low but later recovered some of its losses. The movement in Treasuries coincided with newly released data indicating labor market challenges and a decline in oil prices, further influencing market changes.
Federal Reserve Governor Stephen Miran has brought attention to the need for significant rate cuts, reinforcing a more dovish outlook for the economy. While the Fed typically adjusts rates in increments of 25 basis points, larger cuts of 50 basis points could be on the table, especially with two voting members on the board, including Miran and potentially Hassett, advocating for such a policy shift.
David Robin, an interest-rate strategist at TJM Institutional Services LLC, noted that Hassett’s appointment would elevate the likelihood of rate cuts of 50 basis points during the initial phase of the post-Powell leadership. Treasury Secretary Scott Bessent is leading the search for Powell’s successor, with Trump expected to announce his decision by December 25, considering five candidates for the role.
As the market adapts to this potential transition in leadership at the Federal Reserve, there is cautious optimism that the changes could pave the way for a more accommodating monetary policy, which may help stimulate economic growth moving forward.