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The influence of White House economic adviser Kevin Hassett on monetary policy is likely to be limited if he is chosen as the new chairman of the Fed, according to analysts at Wolfe Research.
Media reports suggest that Hassett, a close ally of President Donald Trump, is the main candidate to replace Jerome Powell, whose term at the head of the Fed expires in May.
Observers suggest that Hassett's proximity to Trump may mean that he will speak on behalf of the president at the central bank. Trump has often disagreed with both Powell and the Fed, constantly urging both to aggressively and quickly cut interest rates to stimulate the economy.
On Tuesday, Trump seemed to re-endorse this position, telling Politico that support for an immediate rate cut would be a requirement for anyone he chooses to lead the Fed. Trump is expected to announce his nominee early next year.
Hassett, an economist with a PhD and experience on the Federal Reserve Board, was recently appointed Trump's head of economic policy at the White House.
In their research note, Wolfe analysts, including Stephanie Roth, claim that Hassett is a "proponent of soft monetary policy" and may be similar to newly appointed Fed Governor Stephen Miran in voting for a deep reduction in borrowing costs.
"[Hassett] will probably be different from Powell, who came from the private sector, acted pragmatically and was careful," Roth said. "Meanwhile, Hassett will use more economic theory and technical language, and the question remains whether he will make bold statements about economics as he does now.".
Roth added that much of the controversy surrounding Hassett's appointment stems from concerns about what his leadership could mean for the Fed's credibility and its long-standing independence from broad politics.
"[B]will he cut rates for legitimate reasons based on data, or do what the president wants? In any case, the call for a 3% rate is currently justified to some extent, since the risks in the labor market are directed downward. However, Hassett's leadership can be tested next year if the data changes upward, which is consistent with our baseline scenario."
However, investors are largely ignoring the possible decline in the Fed's independence. As other strategists have noted, Hassett's influence on the Fed may be limited by the fact that he is only one voice on the larger monetary policy committee.