Trump’s Choice for Fed Chair Matters Less Than This Man

Treasury Secretary Scott Bessent has attempted to stay neutral while shaping the options for the president. (Alex Wong/Getty Images)

Key Points

• Treasury Secretary Scott Bessent is overseeing the vetting process for the next Federal Reserve chair, aiming for candidates who favor lower interest rates.
• President Trump has expressed frustration with current Fed Chair Jerome Powell and has warned Bessent about the importance of fixing high interest rates.
• Leading candidates for the Fed chair include Kevin Hassett and Kevin Warsh, both of whom support Bessent’s vision for a more integrated Treasury-Fed relationship.

Treasury Secretary Scott Bessent is on the precipice of what may be the defining event of his government career.

President Donald Trump has said he will choose the next chair of the Federal Reserve by early January. Bessent has organized and supervised the vetting process, using it to define an agenda that could produce sweeping change at the central bank—and lower interest rates.

Trump’s choice could make that change a reality, validating Bessent’s vision, even if Trump doesn’t fully share it. Or the transition could go awry, leaving Bessent damaged in Trump’s eyes, or even fired from his Treasury post.

Trump has been clear that the stakes are high for Bessent. “The only thing Scott is blowing it on is the Fed because the Fed, the rates are too high, Scott,” Trump said in November, while otherwise showering Bessent with praise. “If you don’t get it fixed fast, I’m going to fire your ass.”

Trump smiled when he said that, and spoke in a tone that suggested he was joking. Trump defers to Bessent more than almost anyone else in his political orbit.

But the president has repeatedly spoken of his frustration with first-term Treasury Secretary Steven Mnuchin, who recommended current Fed Chair Jerome Powell for the job. “Steve ‘Manouychin’ really gave me a ‘beauty’ when he pushed this loser,” Trump posted on social media in August, apparently deliberately mangling Mnuchin’s name.

Bessent’s vetting process is designed to avoid that disappointment—both for the president and himself. His goal from the outset: Find candidates who favor lower interest rates and better integration with the White House in setting monetary policy. Bessent has sent four final names to Trump for consideration.

Bessent isn’t backing any particular candidate and has been focused on the process, said a person familiar with the vetting process.

The leading candidates are known as “the Kevins.” Kevin Hassett is a longtime economic adviser to Trump who runs the National Economic Council. Kevin Warsh is a former Fed governor whom the president considered for chair in the first term.

The other two candidates, Fed governor Christopher Waller and BlackRock executive Rick Rieder, are seen as far less likely to be chosen, given their weaker personal relationship with Trump.

A onetime fifth candidate, Fed governor Michelle Bowman, is out of the race.

People who worked with Hassett earlier in his career, including in his time at the Fed, say he is a well-credentialed academic economist, but some worry that he has demonstrated an excessive degree of loyalty to Trump in the president’s second term. A chair who isn’t seen as credible by his peers could have difficulty convincing his colleagues on the Fed to go along with policy decisions and could fail to sway the market to reduce longer-term interest rates, which the Fed doesn’t control.

That could be a problem for Bessent, who has described himself as the nation’s chief bond salesman. He oversees the $30 trillion market for Treasury debt.

Warsh, meanwhile, is a longtime friend of Bessent’s and shares a professional pedigree. Bessent worked for fabled investor Stan Druckenmiller at Soros Fund Management, and Warsh now works for Druckenmiller’s Duquesne Family Office. Warsh is often perceived as more likely to be independent than Hassett based on his voting history at the Fed and his writings and public statements about the institution. That said, he, too, is committed to lowering interest rates in the near term.

If Warsh were to defy Trump on rates or other Fed policy, Bessent could find himself fired, as Trump warned, or exiled, like Mnuchin. The president’s close relationship with Bessent suggests a sharp break would be unlikely, however.

Bessent has praised both Hassett and Warsh in public appearances. Trump hasn’t yet decided whom to nominate as chair. Assuming Senate confirmation, the next chair would take charge when Powell’s term ends in May.

While the transition at the Fed holds risks for Bessent, another arguably more plausible scenario is that he will find himself newly empowered. He would be working in concert with a cooperative Fed chair who may be inclined to grant the secretary powers long deemed off-limits to the more political part of the executive branch.

“For much of its history, Treasury had a seat at the table on the Federal Reserve,” Bessent said in a podcast interview this week.

As the chair interview and nomination process has unfolded, Bessent has laid out a reform program that would return the Treasury-Fed relationship to something resembling that earlier era.

While Bessent believes the Fed should make decisions about interest rates independent of political considerations, other Fed powers, such as expanding and contracting the central bank’s balance sheet, should be exercised only “in true emergencies and in coordination with the rest of government,” Bessent wrote in an essay published in the fall.

Hassett and Warsh have both said they endorse that vision, and Warsh has been especially vocal about it. He has called for a new Treasury-Fed Accord, referring to the 1951 agreement that ended the Treasury’s seat at the Fed table.

The Treasury would then have a greater say over large-scale asset purchases and sales by the Fed, known respectively as quantitative easing and quantitative tightening, Warsh previously told Barron’s.

Bessent wants to see the Fed’s balance sheet shrink along with the rest of the institution. Lighter-touch regulation would allow banks to lend more capital, spurring economic growth. Changes to the eligibility rules for who can lead the regional Fed banks would go along with a downsizing of those institutions so that their research efforts no longer overlap. Bessent’s criticisms of the Fed’s spending on its building renovation and other niceties suggest its budget could shrink, too.

Bessent said on the podcast that the chair candidates agree with him: “Each one of them has talked about moving back toward the more traditional Fed role, moving into the—just getting the Fed back into the background.”

What that would mean for asset markets isn’t entirely clear. Bessent has suggested that the Fed ought to limit policies such as quantitative easing that he sees as having inflated stock prices after the financial crisis. “We ended up with like this two-tier economy where either you were an asset holder or you weren’t,” he said.

The Fed is “the leading cause” of inequality, Bessent said on the podcast.

Some in political circles believe that Bessent will ultimately be the choice for Fed chair. Trump has said several times that he wishes Bessent would take the job, but publicly and privately Bessent has declined.

Whether or not Bessent takes the job, he is already leaving his mark on the Fed.

Write to Matt Peterson at matt.peterson@dowjones.com