Wall Street warns Trump: Don't pick Hassett as Fed Chair, U.S. economy could collapse

Senior Fox Business journalist Charles Gasparino has revealed that Wall Street and US corporate circles are launching a “last-ditch effort,” strongly warning Trump not to nominate current National Economic Council Director Kevin Hassett as the next Federal Reserve Chair. The market would interpret this as “political interference,” stoking inflation expectations, causing the 10-year US Treasury yield to surge, and dragging down the US economy in 2026.

Two Major Fatal Risks if Hassett Takes Office

Gasparino detailed the core arguments of the opposition in his post. The first major risk is the collapse of Fed credibility. Hassett, having served as a long-term political and economic adviser to Trump, is already seen as a “White House spokesperson.” If he were to lead the Fed, this would severely damage the Fed’s credibility among internal staff and in financial markets, at a time when the market is counting on the Fed Chair to maintain a certain degree of independence.

The Fed’s independence is the cornerstone of US monetary policy credibility. Since the signing of the 1951 Treasury-Fed Accord, the Fed has held a status independent of the executive branch, allowing it to set interest rate policy based on economic data rather than political pressure. This independence has established the credibility of the dollar and US Treasuries in global financial markets. If the new Fed Chair is widely seen as a political subordinate of the President, this credibility would be fundamentally undermined.

Trust among Fed staff is equally critical. The Fed system employs hundreds of economists and policy researchers whose professional analysis forms the basis of monetary policy decisions. If internal staff believe the Chair is merely carrying out the White House’s will instead of acting on economic logic, morale and the quality of decision-making will both decline. Such internal chaos could lead to inconsistent policy signals, increasing market uncertainty.

The second major risk is that long-term interest rates spiral out of control, triggering economic slowdown. Gasparino further pointed out that the market fears if Hassett were to push for aggressive rate cuts before inflation has fully cooled, this would be seen as “political interference” and stoke inflation expectations. Once such expectations are established, bond investors would demand higher rates as compensation, causing the 10-year Treasury yield to surge.

Dual Risk Pathways if Hassett Takes Office

Credibility Collapse Risk: The Fed Chair is viewed as a White House spokesperson, internal decision-making becomes chaotic, and market confidence declines

Long-term Rate Spiral Risk: Politically driven rate cuts fuel inflation expectations, 10-year Treasury yields surge, mortgage and consumer loan costs rise, US economic growth slows in 2026

Should inflation panic drive the 10-year Treasury yield sharply higher and in turn raise mortgage and consumer loan costs, this could instead drag down the US economy ahead of the 2026 midterms. Such a scenario would be a political disaster for Trump, since economic performance directly impacts midterm election results. If the economy slows in 2026, voters may blame Trump’s personnel choices.

Gasparino emphasized that these insiders know Trump “will likely completely ignore the warning,” but have decided to speak out at the last minute anyway. This willingness to warn even in the face of likely futility shows Wall Street’s extreme concern over Hassett becoming Fed Chair.

Trump’s Dilemma in Choosing a Fed Chair

The timing of this post coincides with Trump actively advancing the selection process for the next Fed Chair. Current Chair Jerome Powell’s term expires in May 2026, but Trump has repeatedly and publicly criticized Powell as “too slow and too conservative” on rate cuts, even calling him a “moron.” Trump wants the next Fed Chair to cooperate with his policies, implementing deep rate cuts to stimulate jobs, lower mortgage rates, and create a loose monetary environment for “America First” agendas such as tariffs and tax cuts.

According to the latest developments, Trump said on December 2 that he had “made up his mind,” but the official announcement has been postponed from the original “before Christmas” to “early 2026.” This delay may reflect Trump’s reconsideration of candidates in response to Wall Street’s warnings. The five leading candidates currently recognized by the market and prediction platforms are: Kevin Hassett, Kevin Warsh, Christopher Waller, Michelle Bowman, and BlackRock fixed income chief Rick Rieder.

Although Hassett enjoys Trump’s full trust, he is also the most controversial. He served as Chair of the White House Council of Economic Advisers during Trump’s first term and is now Director of the National Economic Council, making him a core architect of Trump’s economic policy. This close relationship makes Trump believe Hassett would faithfully execute his monetary policy vision, but it is precisely this relationship that raises market fears that the Fed’s independence would be lost.

Kevin Warsh is seen as a more market-friendly alternative. Warsh served as a Fed Governor from 2006 to 2011, navigating the 2008 financial crisis and gaining significant central bank experience. After leaving the Fed, he criticized excessively loose monetary policy—a hawkish stance that could reassure markets. However, Warsh’s relatively distant relationship with Trump may reduce Trump’s willingness to choose him.

Christopher Waller is a current Fed Governor with a strong academic background and expertise in monetary policy. His advantage lies in experience within the Fed system and familiarity with internal operations and decision-making. However, Waller is relatively low-profile in public settings and less well-known than other candidates, which may affect Trump’s interest in him.

The Domino Effect of Surging Long-term Rates on the US Economy

Market concerns about Hassett are not unfounded. If the Fed Chair is seen as a political appointee, the bond market will demand a higher risk premium. The 10-year Treasury yield is the benchmark rate for the global financial system, affecting all financing costs from mortgages to corporate loans. If this yield surges due to inflation expectations or diminished policy credibility, the entire US economy will be impacted.

The mortgage market would be hit first. The 30-year US mortgage rate typically runs 150 to 200 basis points above the 10-year Treasury yield. If the 10-year yield jumps from the current 4.2% to 5.5%, mortgage rates could break above 7%, dealing a heavy blow to the real estate market. Consumers’ monthly payments would rise sharply, homebuying demand would drop, and the construction and related industries would fall into recession.

Corporate financing costs would also rise across the board. US corporate bond yields are closely tied to Treasury yields; if the benchmark rises, borrowing costs will increase, squeezing profits and depressing investment. This tightening effect is especially dangerous during an economic recovery and could push what should be an expanding US economy into stagnation or even recession.

For Trump, the 2026 midterms are a critical consideration. If the economy slows in early 2026 due to surging rates, with rising unemployment, falling home prices, and shrinking consumer spending, these negatives will directly affect voter support for the GOP. Historically, the ruling party often faces headwinds in midterms, and poor economic performance would only make things worse. Thus, Wall Street’s warning is not just about economics—it’s also a political strategy recommendation.

Qualities the Market Wants in a Fed Chair

Gasparino’s report reveals the qualities the market expects of the next Fed Chair. First is professional credibility: the candidate must have a deep background in monetary policy and academic reputation, and be able to convince the Fed’s internal team of economists. Second is market communication skills: every word from the Fed Chair is closely parsed by global markets, so the Chair must clearly convey policy intentions without triggering unnecessary volatility.

Third is political independence, the most contentious point. The market wants the Fed Chair to make decisions based on economic data, not to bow to White House pressure. Yet complete independence is hard to achieve in practice, since the Fed Chair is nominated by the President and confirmed by the Senate—making it inherently a political appointment. The key is whether the new Chair can demonstrate enough independent judgment after taking office, rather than simply executing the President’s wishes.

By these standards, Hassett’s shortcomings are clear. Although he holds a Ph.D. in economics and has think tank experience, his long-term role as Trump’s political adviser casts doubt on his independence. By comparison, Warsh and Waller’s experience working at the Fed makes them more likely to earn the trust of both internal staff and the market.