U.S. bond markets have remained largely unfazed by speculation that White House economic advisor Kevin Hassett could become the next Federal Reserve Chair, though underlying concerns persist that his dovish leanings might weaken the dollar. Hassett, a former senior Fed economist, is seen as closely aligned with the Trump administration—both favoring faster rate cuts. Mike Riddell, Fidelity International’s chief fixed-income strategist, noted that rumors of Hassett’s nomination have "put rate cuts back on the table, which is negative for the dollar." However, market reaction has been muted, likely due to his status as a frontrunner and recent sharp declines in Treasury yields.

Short-term yields, closely tied to Fed rate expectations, initially dipped on Hassett’s lead in betting markets but quickly rebounded. Meanwhile, the dollar and federal funds futures showed little movement, with CME’s FedWatch tool still pricing an 83% chance of a 25-basis-point December rate cut. The Fed Chair shortlist now includes former Fed Governor Kevin Warsh, current Governor Christopher Waller, Vice Chair for Supervision Michelle Bowman, and BlackRock executive Rick Rieder. On Polymarket, Hassett’s odds rose 18 percentage points to 53%, while Waller and Warsh trailed at 22% and 16%, respectively. Bets on Hassett succeeding Powell in May gained traction this week, though the White House dismissed such talk as premature.

Fed Independence Markets have largely shrugged off risks to Fed independence, regardless of the eventual appointee. Even as the administration seeks lower Treasury financing costs, few believe it would prioritize cheap funding over the Fed’s inflation-fighting mandate. "Markets understand the Chair doesn’t set rates but chairs a 12-person committee," said Art Hogan, B. Riley Wealth’s chief strategist. "Even a deeply dovish Chair wouldn’t dictate policy." The rate path hinges on incoming U.S. data, including jobs reports and trade policy impacts.

Tom Graff, CIO of Facet, noted Wall Street would have mixed views on Hassett, whose perceived weaker independence could pressure the dollar and steepen the yield curve. Still, Graff argued Hassett’s orthodox economics would likely prevent extreme dovishness.

A Politicized Fed? The Fed cut rates by 25 bps in September and October, leaving the federal funds rate at 3.75%-4.00%. Policymakers remain divided ahead of December’s meeting. Hassett previously endorsed "slow and steady" cuts while stressing Fed independence from politics, including Trump’s influence. Earlier attempts to oust Fed Governor Lisa Cook raised concerns, though blocked by the Supreme Court.

"Even under Hassett, fears of Trump controlling the Fed are overblown," said Sally Greig of Baillie Gifford. "He’d struggle to sway the committee toward Trump’s dovish wishes—and may prove less dovish than markets expect."