Bond yields jump after Trump hints Hassett won’t be named Fed chair as Wall Street eyes hawk Warsh

“I actually want to keep you where you are, if you want to know the truth,” Trump said at a White House event when he saw Hassett, director of the National Economic Council, in the audience. “I just want to thank you, you were great on TV the other day.”

Although Trump’s comments were clearly inconclusive, they upended expectations about the White House’s extensive search to find a new head of the Federal Reserve, one of the most powerful financial positions in the world. The president’s statements increased the chances of appointing Kevin Warsh, the former governor of the Federal Reserve, who is already one of the most prominent contenders for the position.

Hassett is generally viewed as the favorite in the race to replace Powell because he has worked with Trump since his first presidential term. Last month, Trump referred to Hassett as a “potential Fed chairman.”

Powell’s term as chairman will end on May 15, though he may take the unusual step of remaining on the board as governor after that. Trump appointed Powell in 2018, but quickly soured on him over the Fed’s key interest rate hike that year.

Warsh’s nomination was also likely boosted by the Justice Department’s Fed subpoenas issued last week, which were revealed Sunday in an unusually direct video statement by Powell. The Fed chief charged that the subpoenas were essentially punishment for the central bank’s refusal to cut interest rates as sharply as Trump would like.

The criminal investigation — the first of its kind for a Fed chair while in office — sparked opposition on Capitol Hill, where several Republican senators rejected the idea that Powell could have committed a crime. The subpoenas relate to testimony Powell gave last June before the Senate Banking Committee that touched on a $2.5 billion building renovation project.

Analysts say the backlash has intensified concerns in the Senate that the Trump administration is seeking to undermine the Fed’s independence from day-to-day policy. This, in turn, may reduce Hassett’s chances.

The uproar over the subpoenas “makes it difficult to confirm Hassett, who is clearly close to the president,” Krishna Guha, an analyst at investment bank Evercore ISI, wrote in a client note. “Warsh has the confidence of Republicans in the Senate and his confirmation will be much easier.”

However, Warsh is historically known as a “hawk,” or someone who traditionally supports higher interest rates to stave off inflation, as opposed to a “dove,” or someone who favors lower borrowing costs to stimulate employment and growth.

The yield on the 10-year Treasury note rose on Friday to just over 4.2%, from about 4.17% on Thursday. This increase likely reflects a feeling that Warsh’s prospects have improved, and that as a result the Fed will become less inclined over time to cut interest rates than was the case under Hassett.